Cloud provides pick-me-up for IBM in Q1

IBM cloud data center
Analyst Patrick Moorhead of Moor Insights and Strategy told Fierce, “This is an excellent start to the year for the company that is all-in on the cloud.” (Connie Zhou for IBM)(Credit: Connie Zhou for IBM)

IBM returned to revenue growth after four straight quarters of declines, buoyed by strength in its cloud business.

Though the company’s profit dropped nearly 19% year over year to $955 million, revenue of $17.7 billion inched up 1% from $17.6 billion.

Total cloud revenue across all its segments increased 21% to $6.5 billion. Revenue from its cloud and cognitive software unit increased 4% to $5.4 billion, with IBM CFO James Kavanaugh noting on an earnings call cloud revenue within the segment was up 34% in Q1. Red Hat revenue, which is counted as part of the cloud and cognitive software division, grew 17%.

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Patrick Moorhead, founder and principal analyst at Moor Insights and Strategy, told Fierce, “It was good to see IBM get back to growth,” adding “what you would want to be up, cloud and cognitive, were up, and I was thrilled to see systems and global business services growth as it wasn't expected.” He concluded “this is an excellent start to the year for the company that is all-in on the cloud.”

Kavanaugh said IBM now has about 3,000 hybrid cloud platform clients and has “now tripled the revenue base of OpenShift since we acquired Red Hat” in July 2019. But he added there’s “more to do over the course of 2021. We're investing in skills, ecosystem and innovation as we execute our hybrid cloud platform and AI strategy. We've redesigned our go-to-market model and expect to yield benefits as we move through the year.”

IBM CEO Arvind Krishna reiterated the company views the hybrid cloud market as a trillion-dollar opportunity, with plenty of runway left given “less than 25% of workloads” have been migrated to the cloud so far.

In terms of software demand, Krishna said the overall spending environment is recovering after taking a hit from Covid-19 in 2020. However, he acknowledged “some differences by geography and industry” with strength in the Americas and “pockets in Asia.”

“Explicitly addressing the cloud and cognitive software, we expect Red Hat to maintain itself in the mid- to high-teens. That will show through in the cloud and data platform results being strong,” he said. “We expect our applications, our AI applications, to remain in the single digits of growth.”

All told, Kavanaugh said the company expects to achieve full-year revenue growth, with adjusted free cash flow of $11 billion to $12 billion in 2021.