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Kyndryl revenue slides, company lays out plans for growth

IBM spinoff Kyndryl reported revenue was down in 2021, but expects three cloud partnerships and a focus on growing markets to change that.

Kyndryl, the infrastructure services business IBM spun off last November, released its first financial results as an independent company and laid out plans to focus on high-demand services, including security and digital transformation.

The company reported fourth-quarter revenues of $4.6 billion, representing a year-over-year decline of 8%. Its fourth-quarter pretax loss of $732 million includes a goodwill impairment charge of $469 million and transaction costs of $129 million associated with the spinoff. 

For the full year ending December 31, 2021, the company reported revenues of $18.7 billion, a year-over-year decline of 4%, and a pretax loss of $1.9 billion including the goodwill impairment charge of $469 million and transaction-related costs of $627 million that year.

Addressing financial analysts Tuesday, Martin Schroeter, Kyndryl's chairman and CEO, struck an optimistic tone about the company's competitive chances. Freed from IBM, Kyndryl's addressable market grows from $240 billion to $510 billion by 2024. What will help the company take advantage of the new market opportunities are the three cloud-based alliances it has struck over the past couple of months with Microsoft, Google and AWS.

"Now that we are independent, today's most important market trends have moved from being headwinds to being tailwinds for us," Schroeter said. "We're shifting beyond the constraints of being a captive unit inside IBM with its traditional offerings and free to expand the range of services we offer and the breadth of technologies we use."

Despite its new independence, the startup faces a formidable set of challenges, according to one consultant.

"[IBM Global Technology Services] had been problematic for IBM," said Judith Hurwitz, an independent analyst based in in Newton, Mass. "If this spinoff happened years ago, they would be in a better position today. They're not the only company providing technical support. They have to ask themselves, 'What do we want to be known for?'"

Another challenge Kyndryl faces is IBM, Hurwitz added. While Kyndryl executives have said they don't expect a heavy overlap with IBM, Big Blue's remaining services group also has strategic alliances with Microsoft, Google and AWS.

"Offering services across multiple platforms is a good thing [for Kyndryl], but IBM has relationships with Amazon, Google and Microsoft through Red Hat," Hurwitz said. "This is not a clear-cut, black and white competitive situation for Kyndryl."

Kyndryl sets sites on security, cloud services

Four of the market trends Kyndryl will focus on are cybersecurity, resiliency, digital transformation and cloud migration. These are areas Schroeter believes his company can offer more unified product sets and services across a patchwork of cloud environments.

"Every CEO and CIO with whom I speak is extremely focused on cybersecurity, especially given the current mix of highly fragmented solutions available out there," Schroeter said. "Security threats pose an existential risk to enterprises and it is hard for them to understand what they need, what's available, and how to best implement it."

Schroeter laid out three company-wide initiatives that could will propel future growth. The first is to increase signings and certification with its three new cloud partners. That could open the door for Kyndryl to capture up to $1 billion in additional signings by the end of the fiscal year 2023, which is March 31, 2023.

Second, Kyndryl will significantly improve services delivery to increase quality and allow the company to pivot to new revenue streams faster, saving as much as $200 million in annualized costs.

Third, the company will work to improve those parts of its operations that have substandard margins, better enabling the company to provide more value for mission-critical services. Schroeter estimates this initiative can drive $75 million worth of benefits over the next year.

In addition to the alliances struck with the big three cloud providers, Kyndryl also recently signed contracts with several organizations including with BMW Group to provide the integration of various technologies with its data storage infrastructure, and with Raytheon to integrate its digital technology environment via a hybrid cloud.

As editor at large with TechTarget's news group, Ed Scannell is responsible for writing and reporting breaking news, news analysis and features focused on technology issues and trends affecting corporate IT professionals.

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