IBM revenues decline again as it focuses on AI and hybrid cloud

22 Jan 2021539 Views

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Big Blue’s sales estimates were off the mark in the last quarter as CEO Arvind Krishna shifts the focus to new business segments.

IBM’s revenue declined for the fourth consecutive quarter as the company tries to realign its focus to artificial intelligence and hybrid cloud.

In its latest earnings report, Big Blue revealed that it closed out 2020 taking a hit on sales. It booked total revenues of $73.6bn for the year, a decline from $77.1bn in 2019. Gross profits for the year were slightly down as well at $35.5bn.

The company has attributed the decline last year to a reluctance among clients to invest in long-term spending during the pandemic.

Arvind Krishna, who took over as CEO last year from Ginni Rometty, has made AI and hybrid cloud major focus areas in his attempt to boost declining revenues at the tech stalwart.

“We made progress in 2020 growing our hybrid cloud platform as the foundation for our clients’ digital transformations while dealing with the broader uncertainty of the macro environment,” Krishna said. “The actions we are taking to focus on hybrid cloud and AI will take hold, giving us confidence we can achieve revenue growth in 2021.”

Despite this optimistic tone from Krishna, IBM has not provided a revenue forecast for 2021 but expects to generate an adjusted free cash flow of $12bn for the year. There have also been reports that the company will be cutting staff internationally as it restructures the business.

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Totting up the numbers for 2020, IBM saw revenues decline across most of its major business divisions, with one notable exception.

IBM said revenues at Red Hat, which it acquired for $34bn in 2018, were up 18pc for the year and Cloud and Cognitive Software, the division that houses Red Hat, saw a slight bump in its revenue from $22.8bn to $23.3bn.

Its other main business segments, including consulting, infrastructure and cloud services and operating systems software, all saw revenue drop between 2019 and 2020.

The company is planning to spin off its managed infrastructure services division, a web-hosting and IT infrastructure unit, which will free up more resources for Krishna’s AI and hybrid cloud push. That spin-off is expected to be completed by the end of 2021.

IBM has also been investing heavily in M&A with a slew of acquisitions in 2020, four of which were in the fourth quarter alone including cloud computing firm Nordcloud. That shopping spree has continued into the new year with two acquisitions this month.

“In 2020 we increased investment in our business across R&D and capex, and since October, announced the acquisition of seven companies focused on hybrid cloud and AI,” CFO James Kavanaugh said.

“With solid cash generation, steadily expanding gross profit margins, disciplined financial management and ample liquidity, we are well positioned for success as the leading hybrid cloud platform company.”

Jonathan Keane is a freelance business and technology journalist based in Dublin

editorial@siliconrepublic.com