IT infrastructure services provider Kyndryl this week detailed an expanded partnership with SAP aimed at facilitating joint customers’ ERP cloud transitions through data migration and application modernization services.
Also this week, Kyndryl reported fourth quarter and full-year fiscal 2023 results. Revenue and adjusted earnings exceeded expectations as the company continues to navigate its 2021 spinoff from IBM.
The Kyndryl-SAP partnership is aimed at assisting customers in building and executing their migration from on-premises SAP ERP systems to SAP S/4HANA in the cloud. By most accounts, customer cloud migrations have been tough to execute; big factors have been the amount of custom code tied to the on-premises versions of the enterprise software, as well as costs.
“If you’re a CIO, you’re looking at all this technical debt that you’re sitting on in terms of customizations that you’ve done to code — you’ve got all kinds of things you’ve created in that environment and looking at peeling that back in the same way that you built it,” Kyndryl CIO Michael Bradshaw said in an interview. “It’s just tremendous amounts of money and lots of time.”
Bradshaw knows from direct experience because Kyndryl itself is in the midst of migrating to SAP in the cloud; the first wave of its migration occurred in recent weeks. In fact, Bradshaw referenced an SAP user group study that found 70% of the cost of an SAP implementation project is spent on systems integrators, underscoring the high cost companies will face when they seek to migrate.
To mitigate these issues, the two companies are leveraging the SAP Business Transformation Center‘s ERP expertise, along with Kyndryl’s expertise in data, application migration, and modernization services to create an efficient path to the cloud for customers in the form of a digital blueprint.
The blueprint is intended to serve as a migration accelerator providing data-driven guidance to help CIOs and other IT decision-makers to make informed choices that will lead to accelerated project outcomes.
Kyndryl successfully applied the blueprint to examine and migrate its IT environment — with thousands of applications, hundreds of information and data warehouses, multiple master data apps and visualization tools, and overlapping customizations — to SAP in the cloud. The blueprint calls for minimal to no customizations — an approach that Kyndryl is adhering to in its migration, according to Bradshaw.
“You’re getting a lot of the integrations inherently built for you by SAP, as well as the ability to tie into other environments. And that’s the accelerator — using it out of the box and doing no customizations,” Bradshaw says.
Kyndryl is building a center of excellence to expand its skill base of SAP practitioners; currently, the company employs about 1,000 SAP experts and has brought on approximately 100 professionals to focus on data migration functions. Bradshaw said his role as CIO has been to manage his company’s transition to SAP S/4 HANA while also working on the development of the blueprint and capabilities that customers will benefit from. “A lot of the folks that have been working on my team as part of this (migration) will pivot to move over to the commercial business” working with Kyndryl customers, he said.
Financial Results
In Kyndryl’s financial report, the company said revenue for the quarter ended March 31 was $4.3 billion with a net loss of $737 million. Revenue exceeded analysts’ forecasts by $110 million. The company reported an adjusted pretax loss of $288 million, which was a better result than analysts had forecast.
In addition to the revenue performance, there were additional bright spots:
- Contracts tied to its cloud hyperscaler alliances had an aggregate value of $1.2 billion in 2023, exceeding the company’s $1 billion target.
- The company redeployed 5,500 “delivery professionals” to serve new, higher-margin revenue streams, a change that will generate annual savings of $275 million vs. its original objective of $200 million for fiscal 2023.
For fiscal 2024 which began April 1, Kyndryl offered this guidance:
- Annual revenue of $16 billion to $16.4 billion, or a reduction of 6% to 8% in constant currency. The company attributes this decline mostly to accelerated actions to address low-margin revenue streams. The company expects to return to positive revenue growth in calendar year 2025.
- Profitability will approach break-even with adjusted pre-tax income of -1% to flat.
More on SAP and Kyndryl:
- SAP and Pfizer Are Creating a Data Ecosystem for Life Sciences
- How Kyndryl Aims to Help Customers Accelerate Cloud Native Projects
- How Kyndryl Consulting Services Bring Together Co-Creation, Integration
- How Kyndryl’s Co-Creation Initiative Can Better Align IT With Business Needs
