IBM’s 3Q22 Results Show Big Blue Has Game

The tech industry has fielded very mixed financial results this quarter. Major players like Google and Meta, the new kids on the block, did not perform well as their ad revenue-dependent business models highlight their traditional and troubling weaknesses. What makes them troubling is that it is a common mistake in business to cut marketing spend during an anticipated market downturn which often either causes that downturn or makes it worse. Granted, Meta’s too-early pivot to the metaverse coupled with exceedingly poor execution exacerbates its problem, while more traditionally configured companies are doing much better.

A case in point is IBM which stunned this troubled market with solid results in every one of its forward-looking areas as it beat expectations on both the top and bottom lines this fiscal quarter.

Let’s look at IBM’s financial results this week.

IBM’s Strengths Are Increasingly Focused on the Future

For most of us, at least for now, “the Cloud” is the future of computing. The market tends to ping pong between on-premise and remote hardware, but the pandemic made it clear that aggregating computing resources under a competitively priced service is the way. IBM’s approach to this market was unique and played heavily on its reputation for security and resilience which turned out to be incredibly powerful during a time when hostile state actors are actively attempting to disrupt or compromise enterprise operations.

IBM’s Hybrid Platform & Solutions group provided a compelling and unique approach to this problem by providing coverage across cloud vendors for redundancy along with a secure IBM cloud option for tasks that require security and reliability that the larger cloud providers were unwilling to create.

This allowed IBM to be more like a partner than a competitor to the larger cloud players and better leveraged IBM’s new open interoperable strategy that’s focused on reducing the pain for enterprises struggling through this current hostile environment.

The market rewarded IBM in the third quarter with an impressive 19% growth rate which highlighted that IBM’s approach was uniquely attractive. Add the 18% growth rate of Red Hat which IBM acquired, and it, too, is benefitting from being tied to IBM and its now clearly successful approach to this otherwise difficult market. In addition, Hybrid Cloud revenue across all of IBM’s businesses was up significantly at 19%, proving that this strength is not isolated to a single unit but benefits IBM across the board.

Consulting

While IBM did impressively well with its Hybrid Platform and Solutions as noted above, another more traditional area for the company, Consulting, showed surprising strength. Consulting has long been IBM’s secret weapon in its enterprise offerings. It was once the most trusted vendor in the IT space and its strength in Consulting highlights that this trust still exists by driving 16% year-over-year growth for this part of the business.

Consulting is important, particularly if you have a unique offering like IBM’s Hybrid Platform and Solutions Business. Leveraging this trust, IBM can help its clients more effectively, not only with consumer products and services but those of the large cloud providers. In that space, they can act as an independent source and help organizations pick cloud solutions that both balance cost and benefits optimally and assure the enterprise isn’t exposed by a bad decision. Finally, if a problem arises, IBM is famous for stepping in and aggressively working to eliminate it, giving its consulting clients extra peace of mind.

IBM’s Mainframe

While I have pointed out that IBM is solidly focused on the future, one fascinating metric is how well IBM’s mainframe business has grown by an impressive 98% thanks to the recent launch of its latest product, the Z16. The mainframe was based on the concept of centralized computing which the Cloud has embraced. It reminds me that while the Cloud is relatively new, the concept of a centralized computing service is not. IBM’s mainframe was the dominant platform for a similar concept decades before the Cloud was a thing. Impressively done.

Wrapping up

In what has been a challenging year for the technology market, this quarter IBM showed impressive financial results. It continues to amaze me how strong IBM’s Z series business is given the entire market seemed to think the mainframe died back in the 1980s which clearly showcases that both what made the company successful originally and now was its steady focus on providing a secure, reliable, and trusted solution. These once IBM-centric concepts continue to benefit the company today. In a way, it again means that no matter how much technology advances, the underlying concepts remain the same.

Thomas Watson Jr. once said that to survive and prosper in a changing world, a company needs to be willing to change everything but who they are. IBM has changed the entire company, but it’s still Big Blue and still one of the most historically trustworthy companies in the world.