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IBM revenues head south again as hardware, services sales dip

Reporting its sharpest decline in five years, IBM revenues for 2020 dove 5%. CEO Arvind Krishna highlights opportunities and vows to run IBM differently in 2021.

IBM's road to financial growth continues to be a rocky one with the company reporting 2020 revenues of $73.6 billion, down 5% from the previous year led by declines in its hardware systems, cognitive software offerings and its services business.

Big Blue's Cloud and Cognitive Software unit delivered revenues of $6.8 billion in the fourth quarter, down 4.5% with cognitive application revenues flat. The company's cloud and data platforms, however, grew 9% led by Red Hat's offerings, most notably OpenShift and Red Hat Enterprise Linux (RHEL). Red Hat's performance came as little surprise.

"Technologies from Red Hat are a bright spot for IBM last quarter, in particular containerization technologies with OpenShift, OpenStack and RHEL among the most adopted DevOps technologies," said Daniel Elman, research manager with Nucleus Research. "This performance will only accelerate as more organizations reach the level of IT sophistication and maturity needed to undertake more cloud transformation and cloud-native development projects."

Arvind KrishnaArvind Krishna

Addressing some of the obstacles facing IBM in the last quarter with financial analysts on Thursday, IBM CEO Arvind Krishna said the operating environment that large corporate accounts work in "remains difficult," given the ongoing pandemic along with the broader uncertainty of the macro environment.

"This puts additional pressure on larger software transactions this quarter and project delays in some services engagements," Krishna said. "Our revenue growth was also impacted by IBM-specific headwinds of our product cycle."

Notwithstanding the short-term market challenges, Krishna said IBM has plans in place and the focus to grow in 2021.

Hybrid cloud, containers pose opportunities

Choosing to accentuate the positive, Krishna said there remains a rich opportunity to be pursued in the hybrid cloud market, a market he believes is worth $1 trillion and where only 25% of workloads have moved so far. He believes IBM's platform centric approach, with Linux along with containers and Kubernetes, will offer a competitive foundation for its hybrid cloud platform.

IBM's cloud revenue and service are up, while other systems and services spend took the COVID hit. But as companies come out of this [pandemic], digital transformation will accelerate.
Ted SchadlerVice president and principal analyst, Forrester Research

Ted Schadler, vice president and principal analyst with Forrester Research, Inc., said he thinks Krishna's strategy is heading in the right direction.

"Growth in Red Hat is not a surprise, but is good confirmation in these recessionary times that the bet [Krishna] is making on hybrid cloud is a smart one," Schadler said.

Forrester's data shows 88% of enterprises are implementing or will implement hybrid clouds, he said.

"IBM's cloud revenue and service are up, while other systems and services spend took the COVID hit," Schadler said. "But as companies come out of this, digital transformation will accelerate."

Storage, tech services decline

Storage revenues were down, driven mostly by higher-end products directly tied to the Z series of mainframes. IBM Z Series revenues were down 24% in the fourth quarter compared to last year's fourth quarter revenues, which were up 63%. Explaining the rapid rise and then precipitous fall of mainframe sales, IBM said the year-ago rise was due to banks and other financial institutions buying systems early in the product's cycle while other markets focused on cash preservation which served to "elongate z15 [mainframe] adoption."

IBM's Global Technology Services unit reported revenues of $6.6 billion, down 5.5%, while its Global Business Services unit, which includes consulting and application management offerings, had revenues of 4.2%, down 2.7%.

IBM is changing its internal culture as it enters the new year, Krishna said, as a way of instilling a growth and entrepreneurial mindset.

"As part of this, we are encouraging more business risk-taking and ensuring a higher tolerance for failure across the business," Krishna said. "This should allow us to more quickly respond to clients, seize more opportunities and drive better business outcomes. As a result, we are running the company differently as we enter 2021."

Ed Scannell is an Editor at Large with TechTarget's News Group responsible for writing and reporting breaking news, news analysis and features focused on technology issues and trends affecting corporate IT professionals. He has also worked for 26 years at Infoworld and Computerworld covering enterprise class products and technologies from larger IT companies including IBM and Microsoft, as well as serving as Editor of Redmond for three years, overseeing that magazine's editorial content.

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