IBM's goal for being a hybrid cloud leader hits a speed bump in Q4

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IBM's revenues are down in the fourth quarter as it seeks to become a leader in hybrid cloud under the direction of CEO Arvind Krishna. (Pixabay)

IBM CEO Arvind Krishna's goal of transforming the company into a leader in hybrid cloud and AI hit a speed bump in the fourth quarter.

In IBM's fourth quarter earnings report Thursday afternoon, Big Blue's cloud and cognitive software revenues were down 4.5% to $6.8 billion while revenue for cognitive applications, which includes artificial intelligence, were flat. IBM's revenues of $20.37 billion decreased 6.5% from the same quarter a year ago as it missed Wall Street analysts' estimates by roughly $260 million. 

Krishna took over the CEO mantle from former CEO Ginni Rometty, who is now IBM's executive chairman, in April of last year with the stated goal of making IBM an industry leader in hybrid cloud and AI. In October, IBM split the company apart in order to better focus on its hybrid cloud business, which it sees as a $1 trillion market opportunity.

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Similar to Rometty's final quarters as CEO, IBM's Q4 revenue decreased 6% on an annualized basis, which was its fourth consecutive quarter of declines.

Under Krishna's direction, IBM is in the process of peeling off its IT infrastructure services unit, which is comprised of its managed infrastructure services other than hybrid cloud, into a new company by the end of this year.

Krishna, who was in charge of IBM's cloud computing business prior to his promotion, led IBM's charge to buy Red Hat for $34 billion two years ago. After becoming CEO, Krishna's plan was to leverage Red Hat's cloud and open source expertise as a springboard into hybrid cloud and AI.

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"IBM CEO Arvind Krishna is right that less than 25% of the workloads have moved to the cloud so far," said Danielle Royston, who was formerly CEO of Optiva and the current CEO of TelcoDR. "But he’s wrong to think that this spells a massive opportunity – one he values at an insane $1 trillion. Arvind assumes that 'moving to the cloud' means people will adopt hybrid cloud. This is what he's basing his whole Linux/containers/Kubernetes ‘cloud’ strategy on.

“Instead, I believe the workloads are going to move to the public cloud—which includes Amazon Web Services, Google Cloud Project and Microsoft Azure— and the proof is in their numbers."

Those three hyperscale providers all reported growth in the third quarter with 48% growth for Azure, 29% for AWS and 45% growth for Google Cloud Project annually. (AWS, Google and Azure will report their earnings reports over the coming weeks.)

“Let’s compare those figures to IBM," Royston said. "Revenue fell 6% on an annualized basis, the fourth consecutive quarter of declines. Revenue from its cloud and cognitive software segment is down about 5% year-over-year. Sorry Arvind, but hybrid cloud isn’t cloud. It's fake cloud, and it’s not working for you or your customers. Public cloud is where you’ll find the cost savings and the big revenue opportunities that telco needs.”

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Krishna beefed up IBM's hybrid cloud portfolio last year by buying hybrid cloud consulting firm Nordcloud in December and cloud applications monitoring vendor Instana in November.

Big Blue's shares were down by about 8% in Friday morning trading.