IBM Q3 Earnings: 5 Key Issues CEO Arvind Krishna Should Address

IBM releases its Q3 financial results on Monday and I’m hoping that CEO Arvind Krishna, who’s been in that top spot for 6-1/2 turbulent months, will use that public forum to clarify some key issues essential to IBM’s future.

First, some quick perspective: on my Cloud Wars Top 10 weekly rankings, IBM is #7. And 3 months ago, reflecting on Krishna taking over as CEO in early April just as the coronavirus was revealing its deadly magnitude, I posted this analysis: Why IBM CEO Arvind Krishna Earned an A+ for His Debut Quarter.

A couple of weeks ago, IBM was in the news as Krishna announced the company would spin out its managed-services infrastructure business into a separate company with a TAM of $500 billion, IBM said.

In search of market clarity

By jettisoning a big part of its past, IBM said it would be able to focus more intensely on its future business centered around the cloud, data, and analytics. 

The spinout would also help IBM clarify its new position as a provider of—or, in IBM’s view, the world’s leading provider of—a hybrid cloud platform.

In my view, that spinout was essential but not enough. 

My open letter to Krishna

In one of my daily analytical pieces posted last week called An Open Letter to IBM CEO Arvind Krishna: Keep Swinging that Axe!, I suggested that IBM can’t serve two masters.  Over here, IBM has a very solid future business of cloud and AI and data and analytics and security; and over there, IBM has—at least so far—chosen to retain its Systems business that occasionally shows some nice profits when new mainframes are released but that more frequently seems antiquated, out of place, and completely incongruent with IBM’s future.

And it is within that context that I present my hope that Krishna—the first IBM CEO to come up through the ranks of R&D rather than sales—will use Monday’s earnings release to shed some light on these 5 essential questions for iconic IBM.

1. Will the spinout of the managed-services infrastructure business impact IBM’s cloud revenue?

As IBM struggled for years under former CEO Ginni Rometty to establish a clear and cohesive cloud position, the company could at least point to its rather gaudy cloud revenue of $20 billion or more. While IBM was always more than a little vague in explaining just where all that cloud revenue came from, that big number still gave IBM at least some rationale for saying it deserved to be considered among the top cloud players in the world. Over the past couple of years, I have disagreed with that contention from IBM, which is why it sits at #7 on my Cloud Wars Top 10 in spite of its significant though murky cloud-revenue figures. Last quarter, IBM posted $6.3 billion in cloud revenue, up a whopping 30% and giving it a trailing 12-month revenue figure of $23 billion. Will the spinout cut into that big number? We’ll find out on Monday.

2. As AI becomes one of the hottest markets in the booming tech sector, what is IBM’s new strategy or position for Watson?

This advanced technology that IBM bizarrely for years marketed as something of a consumer novelty gained worldwide notoriety as a gadget while generating scant interest from the people who provide IBM with revenue: business buyers. As every leading cloud company is pushing AI to the forefront of everything it does, what is Krishna’s strategy for Watson? It would be a terrible mistake, I think, to let it continue to languish as a formerly bright and shiny object that very few people outside of IBM understand—or care about.

3. What is IBM’s unique position around data and analytics?

Yes, those are terms IBM has used regularly for years, and yes, IBM can point to scads of products or services involving those two indispensable ingredients for digital business. But what is its cohesive and overarching value proposition to customers about why they should select IBM’s data and analytics solutions over those from #1 Microsoft or #2 Amazon or #3 Salesforce or #4 Google Cloud or #5 SAP or #6 Oracle? If IBM has that rationale stashed somewhere, it should bring it out of hiding.

4. If IBM needed to spin out managed-services infrastructure, why does it need to keep Systems?

Periodic profits, sure—I get that. But only one other company on the Cloud Wars Top 10 still makes and sells systems, and that’s Oracle. And Oracle Exadata systems are purpose-built to run the hugely popular Oracle Database faster and more securely than can be done on any other hardware. So Oracle’s “systems” business is immensely strategic to its overall business—and Exadata revenue is growing in double-digits. Will Krishna shed some light on the strategic imperative that connects a “systems” business with his stated mission to be the world’s #1 supplier of a hybrid-cloud platform? Maybe the tie-in is obvious, and I’m just too dumb to see it.

5. Will IBM jump aggressively into the market for industry-specific solutions?

This year, we’ve seen a surge in activity around this opportunity to help businesses move past the traditional horizontal solutions of the past and present by creating vertically oriented solutions to meet the rising needs of end-to-end digital businesses. This massive opportunity has drawn the interest of many top players and I’ve covered this trend aggressively in 2020, most recently in Rumble in the Cloud: Amazon Battling Google, SAP, Microsoft in Sizzling New Market. IBM has the capability, from its sprawling technology landscape to its decades-long deep relationships with banks, shipping companies, hospitals, retailers, airlines, governments, and more. Will Krishna choose to make this a pointed element in IBM’s future business?

Final Thought

As I evaluate whether Krishna has maintained the A+ he earned in his first quarter as CEO, I’ll be paying special attention to how clearly and persuasively he articulates IBM’s unique differentiation in a world that’s becoming increasingly dependent on modern technology that not only manages change but drives it.

Disclosure: at the time of this writing, Google Cloud, SAP, and Oracle were among the many clients of Cloud Wars Media LLC and/or Evans Strategic Communications LLC.

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