Recent Earnings from IBM

The Six Five team does a deep dive into the latest earnings from IBM.

Watch the clip:

If you are interested in watching the full episode you can check it out here.

Disclaimer: The Six Five Webcast is for information and entertainment purposes only. Over the course of this podcast, we may talk about companies that are publicly traded and we may even reference that fact and their equity share price, but please do not take anything that we say as a recommendation about what you should do with your investment dollars. We are not investment advisors and we do not ask that you treat us as such.


Daniel Newman: Let’s kick it over to another company that earnings had a big one. Biggest earnings growth, I believe it was in three years, Pat. IBM.

Patrick Moorhead: Yeah. So that was really the headline. Now, was it overall big 25% FANG or something like that? No, it wasn’t. But you have to start there before you can get in a rocket ship. I’m going to hit some of the highlights that I thought were important to hit. The first was CNCS cloud, 25% percent improvement. I think that’s probably one of the better comparisons to let’s say an AWS Cloud or a Google Cloud or an Azure Cloud. There was GBS Cloud that was 30%. Essentially, what that is, is all professional services that go around that.

Systems IBM Z. Z 15 versus Z 14, 100% increase, albeit overall systems was down, which I attribute primarily to the state of the roadmap. You’ve got new platforms that are in the pipeline. Free cashflow, $11 billion on an LTM basis. But finally, the big nut was Red Hat. Red Hat had 20% growth year over year. They said open shift revenue was up 3X from before the revenue and have 3,200 IBM clients on a hybrid cloud platform up 4X since acquisition closed with a $5.2 billion backlog. So net net, it’s hard to say. It would be hard for anybody to come up and say that Red Hat isn’t working out for them so far. Do I want double-digit growth top line for the entire company? Yeah, I do. But that’s just not the company that IBM is. So you’ve got to look at to me, what are the growth areas in the marketplace and how is IBM performing in those? It’s AI and it’s cloud, and IBM is doing respectable double-digit growth in cloud. AI, not so much, but I think we’re going to have to see what IBM does with AI in the future.

Daniel Newman: Yeah. A lot to unpack here. It was a good quarter for IBM. Here’s the thing, they’re on the precipice of a very big divestiture of the global technology service business, also known as Kyndryl, which has been proverbially speaking, a boat anchor on the company, has not been showing much growth, it’s heavy, it’s cost-intensive. It’s an important part of the business, but it’s been a business that doesn’t really mesh very effectively with the growth areas that are Arvind Krishna and the leadership team at IBM are focused on. They’re all in on hybrid cloud.

Hybrid cloud. That’s important to point out the difference there, because if you look at public cloud growth, if you look at the battles between AWS, Google, Microsoft, and Azure, and even Oracle, IBM is not really coming out saying, “We want to be the public cloud company,” but they’re building solutions with Red Hat, with satellites, they’re very focused on being able to win and participate in ecosystems that may have AWS, that may have Azure or Google or any of these others. The results though, I believe this quarter are going to be looked at as positive, but I think the race really starts for Arvind and team when that divestiture is complete.

As you suggested, Pat, in the areas like cloud and cognitive services, when you actually break in the service in cloud and growth, and you’re seeing 29% growth, or you’re seeing 35% in global business services, this is the potential of the company. This is the potential of growth if you focus on the areas where they have the right products, the right mix, and have been putting the acute attention over the past few years. That’s where the attention has been spent. That is where growth is coming. Of course, down the pipe, you’ve got things like IBM Quantum, which you can count on being an important long-term growth engine for the company.

As you said, I think AI, IBM was so early with bots in. I feel like it might’ve been a little bit of a missed opportunity for a more rapid growth trajectory for the company, but it has built a really strong reputation in that space, and I do hope there’s a way that the company can revive and grow that. My last ask is that I do hope the company can continue to provide greater and greater transparency, taking out any ambiguity in the cloud numbers because when you come out and you say you’re a cloud company, you want your cloud growth to always be double digit, and when you bolt it up into that big cloud number, it wasn’t 10% plus and the whole company’s not growing 10%, I can live with that. But if cloud isn’t growing 10%, I’m going to struggle with it and I guarantee you, the folks on Wall Street and the investors, and retail, and funds are going to say, “Whoa, why are they not growing faster in cloud?” So that’s something to watch.

Author Information

Daniel is the CEO of The Futurum Group. Living his life at the intersection of people and technology, Daniel works with the world’s largest technology brands exploring Digital Transformation and how it is influencing the enterprise.

From the leading edge of AI to global technology policy, Daniel makes the connections between business, people and tech that are required for companies to benefit most from their technology investments. Daniel is a top 5 globally ranked industry analyst and his ideas are regularly cited or shared in television appearances by CNBC, Bloomberg, Wall Street Journal and hundreds of other sites around the world.

A 7x Best-Selling Author including his most recent book “Human/Machine.” Daniel is also a Forbes and MarketWatch (Dow Jones) contributor.

An MBA and Former Graduate Adjunct Faculty, Daniel is an Austin Texas transplant after 40 years in Chicago. His speaking takes him around the world each year as he shares his vision of the role technology will play in our future.


Latest Insights:

On this episode of The Six Five – On The Road, hosts Daniel Newman and Patrick Moorhead welcome Intel’s Greg Lavender and Sandra Rivera for a conversation on Intel’s AI Portfolio during Intel Innovation in San Jose, California.
A Ride-Hailing Service Powered by 100% Renewable Energy
Clint Wheelock, Chief Research Officer at The Futurum Group, examines Waymo’s announcement that it has decided to focus its efforts and investment on Waymo One, its ride-hailing service.
From Digital Transformations To Periodic Software Reviews, Increased Visibility Can Help Reduce Costs and Improve Application Utilization
Keith Kirkpatrick, Research Director at The Futurum Group, covers WalkMe’s Digital Adoption Platform and discusses why the tool is useful for organizations that are expanding or consolidating their software tech stacks.
Are Consulting Firms Best Positioned To Lead Enterprise AI Transformation?
Mark Beccue, Research Director at The Futurum Group, examines the EY and BCG announcements about major AI initiatives and how these offerings will affect the market.