IBM returns to growth on cloud boom, buoyant mainframe sales.
IBM reported its strongest revenue growth since 2018 in Q1 of 2021 — reported late April 20.
And 12 months in to the job, IBM’s new CEO Arvind Krishna and new President Jim Whitehurst showed every sign on their earnings call that they are turning round the juggernaut that is Big Blue — a company that has languished for years in stagnant growth and an overwhelming sense that it is living, to some extent, in the past.
Cloud revenue was up 18% in the quarter. It now stands at over a healthy $26 billion for the last year. Debt was down $5 billion. With some 3,000+ hybrid cloud platform clients, IBM has now tripled the revenue base of OpenShift since it acquired Red Hat. Consulting also returned to growth, as did software sales, although net income fell notably. (Software renewal rates drove total deferred income to over $18 billion, an all-time high).
The figures come after IBM signed two “massive” last year with US healthcare giant Anthem and Spanish bank Caixa that were worth what Jim Whitehurst described as “well in excess of $1 billion a piece each”, with mid-sized deals, (“read that kind of $10 million to $100 million”) also up in the high-teens.
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Strikingly IBM Z revenue growth was up 49% year-on-year (an impressive figure six quarters into the mainframe’s product cycle), driven by “traction in areas like financial services, where robust market volatility drove demand for increased capacity” Whitehurst said on the earnings call. He added in a Q&A: “Capacity needs are driving some parts of our industry consumption. We’re also seeing changing regulatory requirements, clients needing backup, and recovery as very essential right now… our value proposition of cloud-native applications [with] Red Hat Enterprise Linux, Red Hat OpenShift that runs on our mainframe platform and also pervasive encryption.
“Security is at the top of every CIO and CTO’s priority list and the mainframe by definition is the most secure, most scalable, most reliable platform out there,” Whitehurst added.
As CEO Krishna noted meanwhile, IBM has also “drastically simplified our sales model” — aiming for a “more technical and experiential approach… [with an] adjusted incentive structure for our sales teams… businesses have made massive investments in their IT infrastructure and are dealing with specific constraints such as compliance, data sovereignty, and latency needs in their operations. They need an environment that is not only hybrid, but a hybrid platform that is flexible, secure, and built from open-source innovation. This gives them a credible path to modernizing legacy systems with advanced cloud services and cloud-native apps.”
Partnerships with Schlumberger, Siemens and Palantir all also stood out as quarterly successes.
IBM has had to shift its approach to how it sells software meanwhile, with — as Whitehurst noted — “clients buying behaviors… shifting toward more consumption-based models. As a result, we are seeing a continued preference for opex over capex, putting pressure on perpetual licenses.”
Quarterly revenue was $17.7 billion: “While we have more work to do, we are confident we can achieve full-year revenue growth and meet our adjusted free cash flow target in 2021”, Krishna said.