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IBM Transformation Struggles Continue with Artificial Intelligence Revenue Down

A few months ago, at a conference, IBM CEO Arvind Krishna had drawn a picture of the company amidst a transformation. He said at the conference that he wants to leverage IBM’s USD 34 billion acquisition of Red Hat in 2018. As per him, this would help clients manage a growing hybrid cloud world, using artificial intelligence to drive efficiency.

It seems like a pretty good approach. But instead of the new strategy serving as a big growth engine, IBM’s earnings today showed that its cloud and cognitive software revenues fell 4.5 percent to USD 6.8 billion. Meanwhile, cognitive applications were flat.

If Krishna was looking for a silver lining, perhaps he could take comfort in the fact that Red Hat itself performed well, with revenue up 18 percent over the same period a year ago, according to the company. But overall, the company’s revenues declined for the fourth consecutive quarter. This is just the same as Ginni Rometty, who led the company during 22 consecutive quarters of lost revenue.

Krishna had exposed the company’s strategy in November 2020, “The acquisition of Red Hat has provided us with the technology on which we can build a hybrid cloud technology platform based on open source and based on giving our customers choice  as they embark on this journey.” However, so far the approach is simply not generating the growth that Krishna had expected.

The company is also amidst of divesting its former managed infrastructure services division, which, as Krishna said in November 2020, should allow Big Blue to focus more on its new strategy. Krishna said that the acquisition by IBM will work as a catalyst and we can take further steps of eliminating infrastructure services. Now the rest of the company can be unconditionally focused on hybrid cloud and artificial intelligence.”

Though it is too early to say that his transformation strategy has failed, as the results have not yet come, and IBM’s drop in the leadership must be as frustrating for Arvind Krishna as it was for Ginni Rometty. If you move the company towards modern technologies, away from the traditional ones, you should start seeing results at some point, but so far that has not been the case for either of them.

Arvind Krishna continued to build the company on this vision by purchasing additional firms like cloud application performance monitoring company Instana and hybrid cloud consultancy Nordcloud. He did this to make IBM a one-stop-shop for these services.

Right now, IBM’s growth is going in the wrong direction. Even though it is making some gains with Red Hat in the lead, it is not enough to make up for the losses and something in the company needs to be changed.

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