IBM’s cloud and consulting strategy beginning to bear fruit

Toward the end of 2020, IBM stated it would pursue the hybrid cloud and consulting market with a laser-like focus. That tilt may already be bearing fruit, with a fourth quarter jump in growth.

A sharpened focus on its cloud and consulting operations has seen global tech giant IBM achieve new post-Kyndryl baseline revenue of above $57 billion for 2021. The results, delivered on the back of a 6.5 percent year-on-year rise for its fourth quarter, follow the spin-out of IBM’s managed infrastructure services business in November, in a restructure which also saw its Global Business Services offering rebranded to IBM Consulting.

“We increased revenue in the fourth quarter with hybrid cloud adoption driving growth in software and consulting,” said IBM CEO Arvind Krishna, who has driven the company’s transformation since taking the helm in 2020 following an extended period of sluggish returns.

IBM made 15 acquisitions to strengthen its cloud and artificial intelligence capabilities over the last year alone, including Australian cloud specialist SxiQ and ESG software provider Envisi.

While IBM’s hybrid cloud division is leading the rebound, up 20 percent to $20 billion for the year and 16 percent for the fourth quarter, its consulting line also continues to grow, bringing in $4.7 billion for the quarter to be up by over 13 percent against 2020. This figure jumps to a 31 percent year-on-year fourth quarter gain in terms of the consulting segment’s hybrid cloud revenue. The firm’s other major line, technology infrastructure, was down slightly.

As part of its new reporting regime, IBM made changes to its consulting revenue categories to better reflect market opportunities and how the company addresses them – breaking the segment down to Business Transformation, which was up by 18 percent for the quarter, Technology Consulting (up by 14 percent), and Application Operations, which saw a 6 percent rise. The combined segment brought in a shade under $18 billion for the year.

As a guide to the simplified categories, IBM’s Business Transformation line serves clients in applying technologies at scale to transform key workflows, processes and domains, while Technology Consulting concerns its work helping to architect and implement cloud platforms and strategies to transform enterprise experience. Lastly, Application Operations focuses on platform services in operationalising and running a hybrid cloud set-up.

The company is also confident of ongoing consulting growth, the building momentum driven by the widespread digital transformation agenda and a growing network of strategic platform partners, with expectations of double-digit revenue growth in the first half of this year. In an earnings call with investors, Krishna said IBM had been aggressively hiring throughout 2021, with around 60 percent of its new hires recruited by IBM Consulting.

He also didn’t dismiss the potential for large-scale acquisitions. “M&A has to have an economic benefit for our company and our shareholders,” Krishna said in response to a question on the recent pullback in tech valuations. “As valuations come down, clearly some targets may become more approachable that were not previously. As I said before, we have a little over $20 billion of flexibility over the next three years, so I’d just leave it at that.”