As I think about IBM’s very impressive cloud-revenue growth rates for Q2, it’s hard to comprehend that just 27 months ago, Arvind Krishna took over as CEO as the pandemic was rocking the outside world and IBM’s internal business was woefully unprepared to meet the demands of the digital economy.
Now, I realize that “awesome revival” is strong language, and I know investors weren’t pleased with certain numbers relating to cash flow, foreign exchange, and guidance.
But I’m not in the business of offering investment advice of any kind — what has made me bullish on IBM is that its cloud business is trending upward in several key areas that I’ll specify in a moment. First, though, here are a few of the Q2 numbers that show just how far IBM’s cloud business has come:
- Q2 hybrid-cloud revenue of $5.9 billion, up 18% (24% in constant currency);
- 12-month hybrid-cloud revenue of $21.7 billion, up 19%;
- In its Software segment, hybrid-cloud revenue for the past 12 months was $9.0 billion, up 23%; and
- In the IBM Consulting segment, hybrid-cloud revenue for the past 12 months was $8.6 billion, up 28% overall and up 32% in constant currency.
If those don’t sound like the types of growth rates you normally associate with IBM, you’re not alone. These numbers show that IBM is making excellent progress in becoming a cloud powerhouse with services that are absolutely essential for business customers in today’s disruptive and unforgiving marketplace.
With those numbers in mind, here are some of my thoughts on why they’re so significant — and why IBM has earned the right to be seen in a different light than was the case over the past several years:
- Most important of all, cloud-revenue growth rates are rising in the key parts of IBM’s business.
- IBM is becoming a big-time player in industry clouds, particularly financial services, under the inspired leadership of Howard Boville.
- IBM is interconnecting its mainframe and cloud businesses in ways that make sense for customers and that meet the strategic needs of those customers.
- CEO Krishna understands the strategic power of the cloud at a level far beyond what predecessor Ginni Rometty ever grasped.
- Krishna has also been willing to tackle the corrosive org-structure and cultural challenges that Rometty avoided and/or ignored during her tenure.
In IBM’s Q2 earnings call on July 18, Krishna made a number of points that I believe reflect an entirely new outlook for IBM and a sense of not only purpose but also confidence and capability that the company has been sorely lacking for years, and that led to its steady drop through the ranks of the Cloud Wars Top 10 to its current spot at #10. Here are a few examples, followed in each case by a comment from me:
- “Nearly every client I speak to believes that technology serves as a fundamental source of competitive advantage.” Krishna said, “Nearly every client” believes that — so I gotta wonder just who in the hell are the clients who *don’t* believe that?
- “It serves as both a deflationary force and a force multiplier — and is especially critical as clients face challenges on multiple fronts, from supply chain bottlenecks to demographic shifts.” Powerful perspective on IBM’s ability to address all of those challenges.
- “Given its ability to boost innovation, productivity, resilience, and to help organizations scale, IT has become a high priority in a company’s budget.” Good to see IBM speak with confidence and from the perspective of a strategic leader and visionary, rather than as a marginal player trying to be seen as relevant.
- “As such, there is every reason to believe technology spending in the B2B space will continue to surpass GDP growth.” Very interesting! Krishna takes a page from Satya Nadella’s playbook and describes enterprise tech as an indispensable driver of growth and innovation and competitive advantage.
- “With this demand backdrop, we are executing our hybrid cloud and AI strategy.” Excellent summation of IBM’s new calling card: “hybrid cloud and AI strategy” is so much better than endless repetitions of “hybrid cloud platform” as the force that makes the world go round.
Let me point out two other comments from Krishna that I believe merit special attention.
The first involves what I think was a missed opportunity for Krishna, and that involves the high-growth market category of industry clouds. At one point on the call, Krishna teed up a perfect anecdote about industry clouds for financial services and named three great clients, but for some reason, he chose not to make the industry-specific connection.
“Apart from working with a greater number of clients, those who adopt our platform tend to consume more of our solutions across software, consulting, and infrastructure — expanding our footprint within those clients. Recently, clients such as PNC, Barclays, and Citi have chosen our hybrid cloud capabilities to unlock more business value and meet rapidly changing client demands.”
Krishna needs to do better in expressing more clearly the market vision that business leaders want to see — and it’s ironic because in the second excerpt from Krishna that I want to highlight, he made it clear that he’s very aware of that need.
Describing IBM’s reclaimed position as a future-shaping technology leader, Krishna said, “Clients aren’t just simply buying software or hardware — they’re entering a relationship with a company that’s going to help them navigate the future of technology. This is why innovation and our ability to invent what’s next remains so important.” He went on to describe what he believes is IBM’s leadership position in quantum computing, and IBM’s use of cloud technology to make the nearly unfathomable power of quantum computing accessible for businesses of just about any size.
So, on my use of “awesome revival” in the headline: Yes, that’s pretty aggressive language. But if IBM can continue to seamlessly fuse the power of its traditional technology, plus the cloud, plus artificial intelligence, plus the future of quantum — and do so in a streamlined organization that Krishna has created — it can indeed reclaim its reputation as one of the world’s most influential technology companies.
