Hybrid cloud soars for IBM as CEO Krishna's reinvention continues to impress

Stuart Lauchlan Profile picture for user slauchlan January 25, 2022 Audio mode
Summary:
IBM's transition to a new portfolio of offerings is paying dividends, according to the firm's latest growth figures.

IBM
Arvind Krishna

No New Year blues for Big Blue as IBM turned in its biggest year-on-year sales growth in over a decade as CEO Arvind Krishna’s hybrid cloud strategy appeared to be paying off.

Overall sales rose 6.5% to $16.7 billion in the three months ending 31 December. Hybrid cloud revenue grew 16% to $6.2 billion. The software unit rose 8.2% to $7.3 billion, while consulting, formerly known Global Business Services, was up 13% to $4.7 billion.

It’s validation of the 110 years old company’s direction of travel, argued Krishna:

Over the last year and a half, we have taken a series of actions to execute our hybrid cloud and AI strategy and improve our revenue profile, optimizing our portfolio, increasing investments, expanding our ecosystem, and simplifying our go-to market.

It all starts with the hybrid cloud, he added:

Hybrid cloud is about providing a platform that can straddle multiple public clouds, private cloud, and as-a-service properties that our clients typically have. Our approach is platform-centric, and the platform we have built is open, secure, and flexible and it provides a solid base of the multiplier effect across software and services for IBM and our ecosystem partners.

It starts with Red Hat, which offers clients unique software capabilities based on open-source innovation. Our software, which has been optimized for that platform, helps our clients apply AI, automation, and security to transform and improve their business workflows. Our consultants deliver deep business expertise and they co-create with our clients to advance their digital transformation journeys. And our infrastructure allows clients to take full advantage of an extended hybrid cloud environment.

Customers are responding to this offering with 3,800 clients, up from 1000 a year ago, including the likes of Dun & Bradstreet, National Grid, AIB, and Volkswagen.

AI and quantum 

Krishna also pointed to ‘bleeding edge’ offerings as another key component of the re-invention strategy, such as AI and quantum computing:

We added new natural language processing enhancements to Watson Discovery. We're also combining and integrating products such as Turbonomic, Instana, and Watson AIOps to offer a complete set of AI-powered automation software to address the significant demand…In quantum, we unveiled Eagle, 127-qubit quantum processor. This is the first quantum chip that breaks the 100-cubic barrier and represents a key milestone on our path toward building a 1,000-cubit processor in 2023. 

It all adds up to what was pitched as a ‘New IBM’ taking shape. Krishna argued:

I think that we have done a lot of the heavy lifting we need. I fundamentally believe that we have the right portfolio, and we have the right focus to be delivering on our midterm model…We have the correct portfolio to be able to grow where our clients have got demand and where the market has demand. We are now approximately a 30% consulting company, a 70% technology company. About a little bit under half is software. If I look in software, yes, there is a portion that is very much focused on transaction processing. 

Then if I look at automation, security, data, and AI, I think these play very much into where there is a lot of demand in the market. If I look at consulting, that's how clients are going to go get their projects on digital transformation completed. And then if you look at hybrid infrastructure, we are quite focused in infrastructure on the areas that align to our high-value model. And if I look at both storage and mainframe, they give us a lot of benefit to also help drive the other parts of the portfolio.

As for growing the consulting operation, that he described as being “early innings, not middle or late innings”. The firm has expanded its consulting partnerships with the likes of Salesforce, Adobe, Oracle, AWS and SAP, which has occurred at a time when the conversation has changed over the past three years, suggested Krishna:

It's not about cost savings. It's actually much more about how can you deploy these technologies to improve a process. It is, ‘How do I do omni-channel and multi-channel?’. It is, ‘How do I do resilience in my supply chain?’. It is about, ‘How do I use every warehouse and store as a point of delivery, not just for physical, but for physical or online commerce?’. 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 use our demographics on the skill shortage that is endemic in technology now?

Overall, the direction of travel is clear, he argued:

Across industries, clients see technology has a major source of competitive advantage. They realize that powerful technologies embedded at the heart of their business can lead to seismic shifts in the way they create value. This reality of technology being about a lot more than cost will persist and explains why clients are eager to leverage hybrid cloud and Artificial Intelligence to move their business forward.

My take

Not dead yet by any manner of means. Krishna and IBM have managed a solid balancing act of acquisition - Red Hat - and divestiture - the Kyndryl spin-off last year or this week’s announcement of a sale of Watson Health. One hundred and ten years may be only the start.

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