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CNBC Transcript: CNBC's Jon Fortt Interviews IBM CEO Arvind Krishna from the CNBC Evolve Summit Today

WHEN: Today, Tuesday, November 10

WHERE: The CNBC Evolve Summit

Following is the unofficial transcript of a CNBC interview with IBM CEO Arvind Krishna live from the CNBC Evolve Summit on Tuesday, November 10th.

Mandatory credit: CNBC Evolve Summit.

JON FORTT: Welcome, Arvind, it is good to see you. I want to start off not with NewCo and the spinoff of the infrastructure services business unit yet, but first this letter that you wrote to President-Elect Joe Biden. You laid out some specific priorities there. I'm curious about the timing of it, very quick out of the blocks after the networks, including NBC, called this election over the weekend for President-Elect Biden. But what was your thinking behind doing it and doing it now?

ARVIND KRISHNA: Jon, first, it's a pleasure to talk to you again. And thank you to you and to CNBC for allowing me here. So following the networks, we are no political experts, let me just say that. But the networks and the various states, as they called for President-Elect Biden, IBM has historically worked with administrations of both parties in order to further our country's economic agenda. We felt it was really important to lay out priorities which can help further where we are. And as I said in the letter, promoting unity, promoting science, promoting digital infrastructure and providing economic opportunity so that people who are disadvantaged can move forward, and promoting better trust is really important to move our nation forward. Then, in order to provide a little bit of color, we note a little bit of what we mean by each of these. And really, using science to fight COVID, using artificial intelligence, as well as supercomputing, to come up with better therapeutics and recipes in order to promote reskilling. And maybe not everyone needs to have a four-year college degree to have a great job. And I think you would agree that really promoting racial justice by furthering trusted technology, using precision regulation to avoid inappropriate use, I think are great examples where the public and private sector can come together to really move the needle forward in this country.

JON FORTT: Yeah, you specifically recommend first off, in the letter, the establishment of a scientific readiness reserve, that in the context of the continuing fight against COVID. We're talking about evolving, and largely in the context of business in this event, but government, I suppose, needs to evolve too, we could all agree. What would a scientific readiness reserve do toward that governmental evolution?

ARVIND KRISHNA: You know, I got great advice from -- I'll call them 4 stars in the United States defense recently. And they talked about the fact that it's not enough to have only active members, let's think of those as the scientists who work within the government, but they have a reserve corps. And you call on the reserve corps when everybody in the active is being overwhelmed, in order to provide brainpower, in order to provide physical power, and in order to supplement what is already there. It's not casting any aspersions or stones that who's there; but it's providing greater capacity. 70 percent, maybe even more, of the U.S. scientific manpower is in the private sector. So creating a reserve out of that which can help on certain topics, like I think the current pandemic, clearly requires that help. Would then be able to go do that. So that's what we kind of modeled on, where you can draw upon those people who have the kind of training and the skills because it is those skills that can be brought to bear to solve these incredible problems we have right now around these health crises.

JON FORTT: Now I see that iconic red hat over your left shoulder, so let's go there, as well as talking about the restructuring that you have planned. That's two big moves that you've been a part of, the Red Hat acquisition, before you were named CEO, continuing into now, and now this spinoff of the infrastructure services business. Is this the most significant portion, those two things of the evolution you see, or are there further structural moves perhaps to go for IBM?

ARVIND KRISHNA: No, I would call these the most significant moves. But maybe, Jon, if you don't mind to give me a minute, I'll give you some context against these. We saw and called hybrid cloud as a fundamental tectonic force in our industry about three years ago. We built the confidence on that by doing many projects, building technologies, and that led to the Red Hat acquisition. The Red Hat acquisition gave us the technology base on which to build a hybrid cloud technology platform based on open source and based on giving choice to our clients as they embark on this journey. With the success of that acquisition now giving us the fuel, we can then take the next step and the larger step of taking the managed infrastructure services out so the rest of the company can be absolutely focused on hybrid cloud and artificial intelligence. Our estimates are this is a trillion-dollar opportunity. If you have an opportunity that big and you're still in the early stages of that, it behooves you as a business to put all your focus, all your energy behind that, and pieces that may be relevant but are not that critical to that opportunity can be separated so they themselves can also thrive and grow in the best way possible. So going after the hybrid cloud opportunity, recognizing the trillion dollars, putting an absolute maniacal focus on going after it, creating the platform based on Red Hat, and creating the expertise and services to help our clients make their journey, that's what we're all about, Jon. And that is why this is so exciting, and I think that we have now got the right strategy and the right portfolio to pursue that opportunity.

JON FORTT: Well, Arvind, go even broader with me strategically and how you're thinking about IBM's evolution, because I think back several years to another big technology company, Microsoft. So many of the chattering classes, we can say now, had it wrong about what Microsoft needed. There were talks about somebody coming in from the outside, perhaps from the auto industry, and what a great idea that would have been; massive shakeups and blowups of the business. But it turned out that there were some other pieces that others didn't see that were important. So when you look at culture, when you look at communication, as well as the technology piece, how are those things going to change, and how does that fit into your vision for IBM's evolution?

ARVIND KRISHNA: So Jon, we talked a lot for the last few minutes about our current portfolio. Other than portfolio, culture is absolutely critical. And I've talked a lot internally about a growth mind-set and about being much more entrepreneurial. And we can be entrepreneurs even within large companies, but it comes from having extreme focus. So when you provide the focus of being focused on hybrid cloud and artificial intelligence, which I believe are the two fundamental forces, then you say, how do you unlock everybody being able to go after that? And the growth mind-set, whether -- And that's, by the way, based on research from a Stanford psychologist -- I believe she's from Stanford -- called Carol Dweck. So I give full credit to Professor Dweck. And I'm going to paraphrase it in a way that you find overly simplistic, but you can think about it as, is the glass half full or half empty. Focus on what can be done as opposed to what cannot be done, and really the ability to pick up and go after what is a fundamental north star of the goal you're after. And I think many sports teams are great examples of this. But even if you're a bit behind, you can go after it. So putting that culture through the whole company, making sure that that is what is part of the attributes of successful employees is a big piece of what we're after, but it's always about being much more entrepreneurial. Going after what you believe is going to be the best victory, both for our clients and for ourselves, which is pursuing hybrid cloud. Look, when I begin to define what our clients are after, I believe that most of our clients, especially the large ones, will use multiple public clouds, not just one.  They will also use multiple "as a service" properties. They are also likely, because of regulation or latency, to use things on premise, whether we want to use the word "edge cloud" or "private," etc. So when you put that together, that is hybrid.  What's a technology platform that gives you comfort in what is called the DevSecOps platform, or what gives you comfort around the overall resilience. How can you have only one way to develop across this environment? That's what we're after with what we call the technology platforms, and that is where Red Hat plays such a key role, based on their wonderful history on bringing open source innovation to bear for enterprises and governments. The other side of it is, many of our clients need help in moving the technologies forward.

JON FORTT:  Right.

ARVIND KRISHNA: And in moving our people forward.

JON FORTT: And that's what I wanted to ask about next. You've got this IBM hybrid cloud ecosystem initiative that really involves pulling in a lot of partners, figuring out specific customer needs, and charting a path using a hybrid cloud. As you really focus on hybrid, but you also have to bring in partners to that, what are some of the challenges in remaining focused, but also messaging outside the organization as you try to bring clients along?

ARVIND KRISHNA: So I began by talking a little bit about open source, but open source is not enough to be just a piece of cord and a piece of technology. It's also important to be open so you can bring the innovation of all our partners on behalf of our clients. And so that's why you're hearing us talk about investing a billion dollars in our ecosystem. And the goal of this is to really say that we can work with our ecosystem to bring their capabilities, both products and technologies and services, on top of our hybrid cloud platform on behalf of our clients. And some great examples in there recently, on the product side of "as a service," SaaS made great announcements with Adobe and ServiceNow in the last few weeks.  And that is about bringing their capabilities on behalf of our clients. You also heard us make great announcements with services companies like Tech Mahindra and Vikram, amongst others, as they're building on practices on these platforms. Because then our client gets the best of all worlds, they can begin to pick and choose. And other than those, we also have a Red Hat open marketplace which has now over 100 different software vendors who are bringing their capabilities on top of the OpenShift platform. So when you go across high speeds, you go across "larger as a service," you go across services, it's giving the best of all on behalf of our clients.

JON FORTT: Yeah, makes a lot of sense. And now I want to remind our audience, get those questions in.  They are getting to me. And we've got one now, Arvind, from Sanjay who asks: Given that IBM is currently positioned number 4 in the cloud service provider market and the number 1 and 2 -- that would be Amazon and Microsoft -- command nearly 80 percent of the market share, how does IBM intend to compete and gain market share in the hybrid cloud market?

ARVIND KRISHNA: Well, so I think it's a question of understanding what's hybrid as opposed to pure public. So I look at both Microsoft and Amazon as likely partners in this journey, not as being the 1 and 2.  It's about -- in the hybrid world, the question is: Where does the client want to decide where the workload runs? They can run it on Amazon, they can run it on Microsoft, they can run it on IBM, they can run it on private. What are the technology platform that goes across all of those? Red Hat gives a great answer to that technology platform. There are many capabilities people lead around integration, around cybersecurity. We bring those to bear. Then if we bring services to bear for those clients who would like to get that help both in improving the skills of their own people or for us to do the work for them -- and that is why you see us report $24 billion in 20 -- 12 months on total cloud revenue.  That's a hybrid market, not a singular public cloud market.

JON FORTT: Now, to follow up on that, Arvind, how much do you have to work on IBM's reflexes to make that vision work the way you want? Because often organizations might have reflexes to serve their internal units even above perhaps a customer's particular wants and needs, I don't want to steer them toward another IBM product, for example, are those reflexes where you want them to be; or is that part of the evolution process you're talking about now?

ARVIND KRISHNA: I would call that an opportunity moving forward, Jon. And the reason why you hear me talk about both the ecosystem and also the split we are doing of the spinoff our new company of the managed infrastructure services is to allow the remaining company to be much more focused on the path that I described in hybrid cloud. That implies, then, all that fiction that may have been there is gone. But it's a step -- I believe it will be one of the steps that will help unlock the growth that we will deliver in the medium-term.

JON FORTT: Talk to me about your personal evolution as a leader, a technical leader, a CEO. Oftentimes that takes a particular focus on deciding to work on specific things versus doing everything. What are you working on, as the CEO of IBM, getting into the seat in a year like none other?

ARVIND KRISHNA: Well, so just given where we are right now, number one, I've got to focus on health and safety of our employees, as well as the stability of our balance sheet. So I focused on that. I think we've done a great job on that. 98 percent of our people are comfortable working from home. We have a great balance sheet, I think $16 billion is what we reported at the end of the third quarter as cash on our balance sheet. So I'll sort of chalk it up and say, the team now knows how to do that. I have to be focused on two things: How do we make the remaining company grow? And that is what we've focused on. We have chartered a path, which I have extreme confidence and complete conviction on. And I have to make sure that we can communicate that message to our employees, to our clients, to our investors and to our communities. Jon, as a quick example, on community, you can see the letter to President-Elect Biden; to our employees, you talked about the culture we do inside; to clients, our hybrid cloud and AI message; and to investors is the growth we will deliver. So those are the four, and those are the four I think large audiences that every CEO ought to focus on.

JON FORTT: Okay. Let's talk about your customers and the evolution that they're going through and the ways that you're working on helping them. I know that telemedicine and oil and gas are a couple of areas that you're giving particular focus during this time. How do you engage with them with these hybrid cloud technologies in a way that makes that evolution both as smooth and as quick as possible?

ARVIND KRISHNA: So I think, Jon, we'll agree. I think the digital journey that everybody is on, leveraging both cloud and AI, is the backdrop of the fundamental forces and information technology. Then, if you look at health, I think that we've all been looking at the opportunity for telemedicine for 10 years, maybe even longer, but it's been really, really slow to move forward. What this current crisis drove is that people are now quite willing. Providers are willing to give telemedicine, because that allowed them to make revenue as well as to provide services to patients; and people who are not willing to leave their home could get telemedicine. So some of our clients have 40 million patients, 40 million, now taking advantage of telemedicine services. And that is with Anthem. So when you look at that, I think that's a great example of leveraging both hybrid cloud and AI with all of the networking and other technologies that other people on this session have talked about, are going there. Then if I look at another client, like Schlumberger -- I would actually call them a partner, not a client -- how do you take the ability to provide much cleaner gas, to use much less water, to be wonderfully better for the environment while finding clean energy, and be able to take those technologies and apply them using software all over the globe? Because not everywhere is there a public cloud available. Many countries are reluctant to let the data cross the national boundaries. So working on a 100-cloud platform, again based on Red Hat, but bringing IBM services together with the wonderful intellectual property and software assets that Schlumberger has, and then opening them up for the whole world, I think it's a win, win, win. A win for our clients because they get the technology, a win for Schlumberger because they can go to places they couldn't go before, and a win for us because it's a proof of hybrid cloud.

JON FORTT: A couple of questions. I want to try to hit on them both so -- I know you can be concise, but Rashida asks: Are there any tips that you can share for leading innovation and strategic planning using Agile?

ARVIND KRISHNA: Trust your team. Be really, really focused on what are the two, three, four, five things.  You asked earlier about my change. Don't be a micromanager. I focus on three to five things  I've got to trust that my team is good enough to focus on everything else. So let them do what they do best and provide value in the three to five things that make a really big difference to the team. And Agile. Walk into every meeting prepared. Don't let people use the meeting to educate. Use the meeting for discussion and to make a decision. And use the written word to communicate ahead of time and to educate.

JON FORTT: I've been trying to get Jimmy in here, too. He asks: What is next beyond the crowded market, the cloud? You and I have talked about Quantum, so I know that's kind of a layup for you.

ARVIND KRISHNA: So we all know, I think we all agree, Moore's Law is coming to an end. So it's not that there won't be more designed and more integrated circuits, but Moore's Law is coming to an end, and so I think that the power of computing to solve difficult problems is soon going to hit a plateau. Quantum offers a fundamentally different approach. Quantum, we laid out a roadmap. We are now setting around Quantum volumes of 60. I believe Quantum volumes will get towards 1000 by 2023, and that's the roadmap we gave. It doesn't need to get to millions. Our Quantum volume of 1000, and that's three to five years out, you're going to begin to solve problems in materials, in risk, in pricing, that can make a fundamental impact and provide competitive advantages. Look, when we want lightweight materials, when we all want better batteries for our EVs, when we want lightweight materials for aircraft, these are all examples which can make such a big difference for a sustainable world. And not to forget, I think it's a little bit harder than just materials, but I think drug discovery will be something that Quantum computers are going to be great at, as well. You can see I'm so excited about what these will bring, and in the near term, not that far away, when I talk about three to five years.

JON FORTT: I can see it. So I knew that that would be a bump-set-spike for you. And no better point to end a technology conversation about evolution than quantum computing. Arvind Krishna, CEO of IBM, thanks so much.

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