IBM's new CEO bullish about growth prospects as it posts Q1 results

IBM's new management team will propel the tech titan back to growth, claimed newly-minted CEO Arvind Krishna, as the tech giant posted declining revenues for its Q1. 

Revenues for the three-month period declined by 3.8 per cent to $17.6bn, while its GAAP earnings per share fell by 26 per cent to $1.31.

CRN's sister title CPI breaks down the key points from IBM's quarterly results, and the highlights from Krishna's earnings call with investors.

Red Hat and cloud still carrying IBMs sales growth

As with its last quarter, IBM's Red Hat business is responsible for a large chunk of its revenue growth in Q1.

Aside from reporting that 2,200 customers are now on the Red Hat and IBM container platform, IBM said the Red Hat business grew sales by 20 per cent in constant currencies to $719m during the quarter, helping to push its overall Cloud and Cognitive Software business to seven per cent growth to $5.2bn.

Its Cloud and Data Platforms segment, which includes Red Hat, saw 34 per cent growth year on year. On a normalised organic basis, which excludes the Red Hat business, this segment grew by three per cent.

However, the same buoyant growth figures were absent in other parts of IBM's business. Systems, which includes hardware including storage, servers and mainframes, was the second highest performing business of the quarter with four per cent revenue growth to $1.4bn.

Global Business Services meanwhile saw a one per cent increase in revenues to $4.1bn, while Global IT Services suffered a six per cent revenue drop to $6.5bn.

IBM claims it Cognitive Applications and Transaction Processing Platform businesses were hit badly during the quarter with revenue declines of three per cent and 15 per cent respectively. IBM said this was due to the COVID-19 crisis.

CFO Jim Kavanaugh said these segments are industry specific and suffered from the collapse of the retail and automotive industries during the COVID-19 crisis.

IBM's new leadership team will ‘deliver growth back to the market'

Big Blue made a flurry of high-profile leadership changes during its first quarter. Former CEO Ginni Rometty departed at the start of the year, with Krishna taking the reins.

Former Red Hat boss Jim Whitehurst was made President after Ginni's departure. Then this month, IBM's Bridget van Kralingen was  promoted to SVP of global markets and Bank of America's CTO, Howard Boville, was drafted in to become head of its Cloud Platform business. In 2019, it also appointed Mark Foster to lead its services business.

Krishna told investors he is confident that IBM's new leadership team will deliver growth for the IT giant that has historically suffered from consecutive quarters of revenue declines.

He stressed that revenue growth remains a key metric for IBM, along with other KPIs such as earnings per share and liquidity.

"I think this is a team that's going to be able to deliver growth back to the market," he said.

"And I think it is a team that can go deliver growth. But let's also be clear. We can talk about what is important, is it growth, is it only EPS or is it only liquidity? Look, liquidity is essential, without that no company is going to survive through the next period, and I don't know how long the period is going to be. So, I think our obsession with that is going to serve us well in this period. But, what you are hearing me say is that growth has to be an equal obsession to other metrics that we have."

IBM withdraws financial guidance for 2020

Along with other vendors such as Dell, VMware and HPE, IBM has also withdrawn its financial guidance for this year.

IBM was expecting to post GAAP EPS of at least $10.57 and a non-GAAP EPS of at least $13.35.

The firm repeated that the decision was made due to the "unprecedented times" the industry is going through as a result of the COVID-19 crisis.

But Krishna stressed that 95 per cent of IBM's 350,000-strong workforce are able to work remotely, with around 8,000 still working at essential sites to carry out "mission-critical" work.

AI and Cloud remains main focus, with divestments and acquisitions on the table

Krishna echoed his remarks from when he was first appointed CEO earlier this month, in claiming that AI and cloud will be the key growth drivers for IBM.

He said the firm has divested some software and services assets over the last few quarters to help the firm hone in on its core competencies, and further divestments - and acquisitions - are in the cards for the future.

"As you saw last year, we divested quite a few things in the software portfolio that were not core to hybrid cloud. They were around marketing properties and service properties around many of our retail clients. It didn't really necessarily fit or have synergy with the core hybrid cloud portfolio. So, it made sense to divest them," he said.

But Krishna said no divestments or acquisitions will be made in the coming months while the COVID-19 crisis is still ongoing.

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