IBM Cloud Makeover Shows Results

Analysts said the results show the new focus is working.

Part of IBM’s new strategy is to capitalize on a trend toward hybrid cloud computing, in which companies use a combination of their own data centers and computing resources leased from others and accessed online. IBM provides tools designed to ease the transfer of business applications and data between separate cloud systems and customers’ on-premises data centers. The company’s 2019 acquisition of open-source software maker Red Hat Inc. boosted its standing in the hybrid cloud market.

The shift to hybrid cloud computing has been accelerated by the rise of remote work, e-commerce and other changes in IT workloads sparked by the pandemic.

“As the transaction volume and cross-cloud integration rises, IBM will be a good place to stitch it all together,” said Ted Schadler, vice president and principal analyst at IT research firm Forrester Research Inc.

In November, IBM cemented its strategy shift when it completed the spinoff of Kyndryl Holdings Inc., its $19 billion IT infrastructure and data-center management business, which had been a drag on revenue in recent years.

IBM on Monday reported net income of $2.33 billion in the three months ending Dec. 31, up from $1.36 billion in the year-ago period. Fourth-quarter revenue rose 6.5% to $16.7 billion, the company said, beating analysts’ expectations.

Hybrid cloud revenue rose 16% to $6.2 billion, and software revenue—including data and AI tools—rose 8.2% to $7.3 billion, the company said.

“The results were very good and evidence that the strategic pivot to hybrid cloud and AI, a simplified sales approach, and major investment in the partner ecosystem is yielding results,” said Bob Parker, a senior vice president at research firm International Data Corp.

Mr. Parker said roughly 70% of IBM’s revenue can now be attributed to software and services, “and these are the largest and fastest growth vectors in the overall information technology market,” he said.

IBM Chief Financial Officer James Kavanaugh noted in the earnings press release that the company acquired 15 companies in 2021 to strengthen its hybrid cloud and AI capabilities.

IBM’s growing analytics and AI offerings aim to help enterprises ease the process of getting advanced capabilities up and running quickly, enabling companies to gain insights from troves of business and transaction data, said Arun Chandrasekaran, distinguished research vice president at IT research and consulting firm Gartner Inc.

“The Kyndryl spinoff provides IBM an opportunity to more closely partner with global system integrators,” Mr. Chandrasekaran said.

Gartner expects companies world-wide this year to spend more than $671 billion on enterprise software, up 11% from 2021, with cloud systems accounting for the bulk of investments. At the same time, it expects spending on data centers to rise by 4.7% to $226 billion.

Forrester’s Mr. Schadler credits IBM Chief Executive Arvind Krishna with giving the veteran IT company a new lease on life, after years of losing ground in the enterprise market to cloud-service front-runners like Amazon.com Inc. and Microsoft Corp.

“IBM had been in too many businesses that are shrinking and not investing enough in businesses that were growing,” Mr. Schadler said.

He said Mr. Krishna has been very specific about hybrid cloud, and analytics and AI, as growth businesses. “It’s clear that those markets are expanding,” Mr. Schadler said.

Write to Angus Loten at [email protected]