IBM Revenue Growth Accelerates in Q4

IBM's Q3 2021 Revenue: A Significant Turnaround

IBM announced its Q3 2021 revenue results, and the outcome was notably positive. For a corporation experiencing either stagnant or declining revenue for nearly ten years, the performance was exceptionally strong.

The company reported $16.7 billion in revenue for the quarter, representing a 6.5% increase compared to the same period last year. This growth reached 8.6% when adjusted for currency fluctuations, as a stronger dollar impacted several companies’ financial reporting.

Recent Performance and Strategic Shifts

These favorable results follow a previous quarter where IBM recorded more modest growth of 0.3% in Q3 2020, with revenue totaling $17.6 billion. This improvement coincides with the recent separation of its $19 billion infrastructure services business.

It may initially seem paradoxical for a company to divest a substantial portion of its operations and simultaneously achieve positive outcomes. However, this strategic decision appears to have been central to CEO Arvind Krishna’s plan to concentrate primarily on cloud computing.

A History of Challenges and Leadership Change

For years, the company faced difficulties, even experiencing 22 consecutive quarters of revenue decline. When Ginni Rometty stepped down as CEO in 2019 and Arvind Krishna assumed the role, he signaled forthcoming changes and a commitment to streamlining the business.

This involved the spin-off of Kyndryl and the sale of the majority of its Watson Health division. Rometty had previously invested heavily in Watson Health, but Krishna demonstrated a willingness to divest assets that did not align with his strategic vision.

Focus on Red Hat and Hybrid Cloud

The sale to Francisco Partners was completed for approximately $1 billion, significantly less than the funds Rometty had allocated to the division.

Krishna has prioritized building the company around Red Hat, which IBM acquired in 2018 for $34 billion. The hybrid cloud division, encompassing Red Hat, generated $6.2 billion in revenue for the quarter – a substantial 18% year-over-year increase.

Looking Ahead: Sustainable Growth

The CEO has emphasized a desire for consistent, sustainable growth, rather than dramatic spikes. He aims for the kind of steady progress expected from an established company like IBM, and a definitive end to the pattern of negative quarterly results.

The current trajectory suggests they are progressing towards this goal. The company has now achieved three consecutive quarters of positive growth in fiscal 2021: 3%, 0.3%, and 6.5%.

Analyst Perspective

Patrick Moorhead, founder and principal analyst at Moor Insight & Strategies, views the report as a promising indicator. “While a single strong quarter doesn’t establish a trend, three consecutive quarters do, and I anticipate mid-single-digit growth in the near future.”

IBM is demonstrating a clear shift in strategy and a renewed focus on key growth areas, potentially signaling a sustained period of positive performance.

Positive Performance Indicators

Beyond the exceptional growth observed in hybrid cloud revenue, several other positive results emerged from IBM’s Q4 performance. Software revenues experienced an 8% increase (10% when adjusted for currency fluctuations), and revenue generated from consulting services rose significantly by 13% (16% in constant currency).

These generally favorable outcomes culminated in a robust profit performance. IBM announced a gross profit of $9.5 billion, representing a modest 2.5% improvement. This translated into a substantial $2.9 billion in net income for Big Blue, a remarkable 183% increase before taxes.

Even after accounting for taxes, IBM’s profit remained strong at $2.5 billion, a notable 107% increase compared to the same quarter last year. The company’s financial health demonstrates continued profitability.

IBM’s sustained success wasn’t accidental, and perhaps a greater degree of confidence was warranted. However, a prolonged period of negative growth understandably fostered skepticism among many observers. Currently, investors are responding positively, as evidenced by a considerable rise in IBM’s share price during after-hours trading.

The key question now is whether IBM can sustain this momentum throughout the current year. Consistent performance will solidify this turnaround and confirm a genuine recovery.

Key Takeaways

Hybrid cloud revenue demonstrated exceptional growth.
Software revenues increased by 8% (10% constant currency).
Consulting services revenue grew by 13% (16% constant currency).
Gross profit reached $9.5 billion, a 2.5% increase.
Net income surged to $2.9 billion, a 183% pre-tax increase.

IBM’s recent financial results indicate a significant shift from years of stagnation. The company has not only achieved growth but also experienced substantial expansion in its top-line revenue during the latest quarter.