IBM reports its best growth in a decade as transformation kicks in
"We are now a 30% consulting company, a 70% technology company.”
IBM reported its best sales performance in a decade this week. Q4 revenues of $16.7 billion (up 6.5%) came at the end of a year of transformation, including the spinoff of its managed infrastructure services business Kyndryl and the acquisition of 15 companies. IBM’s $34 billion acquisition of Red Hat in 2019 continues to bear fruit meanwhile: Red Hat-related signings more than doubled this year and are now over $4 billion since the deal.
Hybrid cloud revenue meanwhile hit $20.2 billion for the year, up 20% and the company also promised a new mainframe release in H2. ("Both storage and mainframe [continue to] give us a lot of benefit to also help drive the other parts of the portfolio" IBM CEO Arvind Krishna noted on an earnings call.
Speaking about the changing demands from customers, Krishna addded: “Everyone is looking on how do you deploy technologies, be it Salesforce, Adobe, cloud technologies, to go improve their processes."
"The conversation has changed from three years ago. It's not about cost savings", he emphasised to analysts, "it's actually much more about how can you deploy these technologies to improve a process: how do I do omnichannel and multichannel, is it how do I do resilience in my supply chain, is it about how do I use every warehouse and store as a point of delivery not just for physical but for physical or online commerce...
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“As we begin to look across these topics and then as we look at the added cyber threats that come in, these do create a huge pull from clients on ‘how do you improve the end-to-end customer experience, how do you improve the resilience of their supply chain, how do you improve the experience for employees, how do you begin to use bots… to take care of all the upcoming [challenges] around skills" he added on the January 24, 2022 call.
Automation has been a key demand from blue chip clients with most major SIs and technology companies in recent quarters. An analysis by The Stack of five of the world's biggest banks' earnings calls in mid-2021 for example found automation frequently cited as among strategic transformation priorities -- and IBM CFO Jim Kavanaugh noted that automation delivered the business strong revenue growth, up 15% on-quarter, boasting that clients were "realizing rapid time to value from Instana and Turbonomic" (two automation acquisitions).
The trend is pronounced: Gartner predicts that "through 2024, enhancements in analytics and automatic remediation capabilities will refocus 30% of IT operations efforts, from support to continuous engineering."
Pressed on whether IBM's new leadership had finished its heavy pruning of the company, CEO Krishna said: "you should not expect any major strategic divestitures like we just have talked about with Kyndryl. I think those are behind us. Now we have the portfolio that allows us to deliver on our medium-term model."
This is the start of the new IBM and perspective on what we look like going forward,” Chief Financial Officer Jim Kavanaugh said in an interview. “We saw a very healthy acceleration in cloud and consulting."
IBM has trimmed net debt by $10 billion over the year -- it now stands at $51.7 billion. Net income from operations in Q4 stood at $2.3 billion, up from Q4 the previous year's $1.4 billion.
