IBM is one of the first companies to report in the current earnings season. And the company, as expected, reported unusual happenings related to the COVID-19 pandemic. In addition, because of the disruptions caused by the current crisis, the company decided to suspend its guidance for the full year 2020.
“In March, our software transactions stalled nearly overnight, as our clients shifted their focus to resiliency efforts,” said IBM CFO Jim Kavanaugh, according to a Seeking Alpha transcript. He added that many transformational deals were paused, especially in the retail industry.
In addition, IBM helped its clients swiftly pivot to new realities. The CFO said it helped “a major U.S. insurance company” that had absolutely no work-at-home capabilities to transition its 40,000 employees to work remotely within a two-week time frame.
In another example, Kavanaugh said, “In Brazil, we developed a platform in a single week to connect patients to doctors via telemedicine.”
On top of that, more than 95% of IBM’s own 350,000 employees are now working remotely. And the company is learning how to do sales presentations and tech trials with prospective clients, virtually.
This earnings call was the first for new IBM CEO Arvind Krishna, who replaced former CEO Ginny Rometty on April 6. Krishna played an integral role in the purchase of Red Hat.
On the first quarter earnings call, Krishna said, “It was a tough decision to withdraw guidance. But these are unprecedented times, and this quarter is not the time to declare that we have clarity.” However, he said he has confidence in IBM’s business. “Under different scenarios, we have ample free cash flow and liquidity to support the business and secure our dividend,” said Krishna.
Recently, the company named Howard Boville as the new head of its cloud business – the position that had been held by Krishna. IBM also recently named Paul Cormier as the new CEO of Red Hat, replacing Jim Whitehurst, who was named IBM's president in January.
When IBM purchased Red Hat for $34 billion in July 2019, it touted the synergies, saying IBM had 30,000 customer relationships and a global footprint, and Red Hat brought cloud technologies including the Red Hat Enterprise Linux operating system, OpenStack for cloud infrastructure and the OpenShift container platform.
On this week’s earnings call, Kavanaugh said, “We have standardized our cloud application modernization offerings on OpenShift and built the world’s largest Red Hat consulting practice. We are now working with over 100 clients on Red Hat technologies, such as Anthem, Procter & Gamble, USAA, Santander, and Horizon Healthcare, just to name a few.”
However, he said that as the impact of COVID-19 intensified in March, clients began to de-prioritize some of their projects. Top priorities for enterprises right now are IT resiliency and business continuity, minimizing cybersecurity risks, and reconfiguring their IT environments for cost efficiency and business agility.
“We are prioritizing our resources and our management system to these opportunities, focusing on offerings like unified communications, business continuity and resiliency, workplace virtualization and enabling remote working,” said Kavanaugh.
The number of Red Hat large deals was up from the fourth quarter, and up about 50% over last year, according to IBM. “Red Hat signed the two largest deals in its history, leveraging IBM’s deep client relationships,” said Krishna, He also touted the value of container technology offered by the company, saying the number of clients now using Red Hat and IBM’s container solutions has grown to over 2,200.
For the first quarter 2010, IBM reported total company revenue of $17.6 billion, down 3.4% year-over-year. But its total cloud revenue of $5.4 billion, was up 19%.