IBM reports strong cloud-driven earnings after Kyndryl spin-off

25 Jan 2022

Image: © Nikolay N. Antonov/Stock.adobe.com

Sales growth at IBM was the highest in a decade, driven by hybrid cloud adoption increasing software and consulting revenue.

IBM reported strong revenue growth in its fourth quarter of 2021, marking a good start to the company’s new outlook after it spun off its IT infrastructure business as Kyndryl in November.

The 110-year-old technology giant reported $16.7bn in revenue, up 6.5pc from last year and well within its expectation of mid-single-digit revenue growth after the spin-out. It is also higher than analyst expectations of $16bn, leading to a jump in stock prices yesterday (24 January).

Future Human

Arvind Krishna, chair and chief executive of IBM, said that the revenue growth was driven by hybrid cloud adoption increasing sales in software and consulting. According to Bloomberg, IBM sales growth last quarter was the highest in at least 10 years.

“Our fourth-quarter results give us confidence in our ability to deliver our objectives of sustained mid-single digit revenue growth and strong free cash flow in 2022,” Krishna added.

Software revenue was up 8.2pc while consulting revenue went up by 13.1pc. There was little movement in infrastructure revenue, but hybrid cloud boasted a 16pc growth in revenue to $6.2bn. In the full year, IBM made more than $20bn in hybrid cloud sales – an increase of 20pc over the previous year.

The decision to separate the Kyndryl business, first announced in 2020 as a way to focus on AI and cloud, could mark a new direction for a company that saw negative or low revenue growth for almost a decade.

James Kavanaugh, IBM senior vice-president and chief financial officer, said that with the separation of Kyndryl “we now have taken the next step in the evolution of our strategy, creating value through focus and strengthening our financial profile”.

“In 2021, we continued to invest for the future by increasing R&D spending, expanding our ecosystem and acquiring 15 companies to strengthen our hybrid cloud and AI capabilities,” he added.

Within the software segment, Red Hat (which IBM acquired for $34bn in 2018) showed the most impressive growth, with revenue up 19pc for its open-source software services. Automation revenue was up 13pc, the data and AI segment was up by 1pc, and security was down 2pc.

Krishna told analysts on the earnings call yesterday that they should not expect more divestures any time soon along the lines of the Kyndryl spin-off – for which IBM is still on the hook for more than $500m in costs.

“We have the correct portfolio to be able to grow where our clients have got demand and where the market has demand,” Krishna said. “We are now approximately a 30pc consulting company, a 70pc technology company. It‘s about a little bit under half in software.”

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Vish Gain is a journalist with Silicon Republic

editorial@siliconrepublic.com