IBM CEO: Coronavirus Pandemic Accelerating Shift To Hybrid Cloud, AI

Arvind Krishna, in his first earnings call as IBM's CEO, says it is essential for the company to focus on customers' journey to the hybrid cloud.

The COVID-19 coronavirus pandemic impacted IBM at the end of what would have otherwise been a quarter of momentum but is not slowing its goal of becoming the IT industry's top hybrid cloud technology provider, new IBM CEO Arvind Krishna said Monday.

Krishna, speaking with analysts during IBM's first fiscal quarter 2020 conference call for the first time since he took over as IBM's CEO, said it is essential for IBM to focus on customers' journey to the hybrid cloud.

IBM, together with Red Hat, which IBM acquired last July, has a unique advantage that will help it become a leading provider of hybrid cloud capabilities, Krishna said.

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"There's our open source and our security leadership, our deep expertise, and trust," he said. "But also the fact that we give clients the unique ability to build mission-critical applications once and run them anywhere."

IBM and Red Hat together are establishing Linux containers and Kubernetes as the new standards in the hybrid cloud, Krishna said.

"This is winning the architectural battle for hybrid cloud," he said.

IBM's focus is on ensuring it will lead in cloud and artificial intelligence, which are the two primary transformational journeys customers are on, Krishna said.

IBM's services capabilities will be a big part of that move, he said.

"Clients, however, need more than a platform," he said. "They need our deep industry expertise. This is why the services that clients rely on to build and manage the hybrid cloud platform is a massive opportunity for IBM. It's nearly half of the $1.2 trillion hybrid cloud opportunity."

IBM's first fiscal quarter started off with good momentum and saw modest revenue growth once acquisition costs and currency changes were excluded, Krishna said.

However, he said, because of COVID-19, the last few weeks in the quarter slowed as customers focused their priorities on the preservation of capital.

"This impacted software disproportionately. ... The other parts of our business sustained moderate momentum," he said.

IBM believes the shift to hybrid cloud and AI is being accelerated by the pandemic, Krishna said. "This gives me immense confidence in our future," he said.

IBM is meeting the COVID-19 crisis in several ways, Krishna said. More than 95 percent of the company's 350,000-plus employees worldwide are now working remotely, while about 8,000 employees are remaining at essential sites to carry out mission-critical work, he said.

The company is also helping society in a number of ways, Krishna said. It has helped convene over 360 petaflops of computer capabilities for researchers, is providing county-by-county information on the coronavirus via its Weather Channel, and providing AI assistance in answering questions about COVID-19, he said.

"In just a few weeks, we have already committed over $200 million in terms of contributions and volunteer time," he said. "I'm extremely proud of IBM's response to COVID-19."

During the question-and-answer period, Krishna responded to an analyst's question about IBM's digital transformation by saying that the pandemic has accelerated IBM's digitized approach to selling. The company is doing more demonstrations of its technology using virtual presentations, and has moved away from traditional "garages" where IBM and client personnel sit side-by-side to implement new technology to "virtual garages" which give IBM personnel access to global teams.

"You can expect us to do more of this," he said.

IBM also is withdrawing its prior guidance because of uncertainties stemming from the COVID-19 coronavirus pandemic, Krishna said.

."It's difficult to provide clarity, and so we withdraw our guidances," Krishna said, adding that the company plans to update its guidance at the end of the second quarter.

For its first fiscal quarter of 2020, which ended March 31, IBM reported revenue of $17.57 billion, which was down 3.4 percent over the $18.18 billion the company reported for its first fiscal quarter 2019. Revenue missed analyst expectations by $50 million, according to the financial site Seeking Alpha.

Total cloud revenue for the first fiscal quarter rose 19 percent year over year to $5.4 billion, and was up 13 percent to $22 billion for the last 12 months.

Cloud and cognitive software sales rose 5 percent year over year, while systems sales rose 3 percent and IBM's Global Business Services business was flat over last year.

Red Hat revenue, after being normalized for historical comparability after the acquisition by IBM, rose 18 percent over last year to reach $1.1 billion, IBM said.

IBM reported GAAP net income of $1.12 billion, or $1.31 per share, for its first fiscal quarter, down from the $1.6 billion, or $1.78 per share, it reported for the same period last year. On a non-GAAP basis, IBM reported net income of $1.6 billion, or $1.84 per share, down from last year's $2.0 billion, or $2.25 per share.

GAAP earnings per share beat analyst expectations by 2 cents, while non-GAAP earnings per share beat expectations by 4 cents, according to Seeking Alpha.