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IBM’s Q4 Earnings Indicates A Turnaround Story Under New Leadership

IBM reported Q4 earnings that topped estimates, giving its shareholders a layer of protection as the broader tech market declines.

IBM (NYSE: IBM) was founded back in 1911 and despite peaks and troughs, it still remains one of the largest technology companies in the world. It’s easy to forget that this company was once an innovative powerhouse; pioneering the way in personal computing, data storage, and the rollout of ATMs in the financial services system. Now the company is looking to get back to its routes. 

IBM’s turnaround plan

Strategic initiatives put together by CEO Arvind Krishna aim to transform the company by chasing new-age technologies such as cloud services and artificial intelligence.

We can see the evidence of the company’s commitment to this strategy from IBM’s sale of its Kyndryl business, an infrastructure services arm designed to assist legacy companies, and its steadfast commitment to its software business Red Hat which the company bought in 2018 for $34 billion.

IBM’s Q4 earnings

IBM reported a 10% year-over-year (YoY) increase in its software segment, and its consulting business grew 16% YoY, which made up 70% of the company’s total revenue in 2021.

IBM was on an acquisition spree throughout 2021, with 15 businesses acquired in the year, and 5 acquisitions in Q4 2021 alone. This is all a part of IBM’s aforementioned turnaround plan that with the majority of the buy-outs involved in the software space; segments such as application performance monitoring, cybersecurity, data protection, and sustainability monitoring were among the lengthy list.

IBM also put a key focus on the strengthened development of its partnerships in Q4, including its relationships with LG Electronics in quantum computing, AI analytics with Amazon Web Services (AWS), 5G connectivity with Cisco and Palo Alto Networks, hybrid cloud services for Volkswagen, software integrations with Salesforce and SAP, and consultation for Oracle and Adobe. The list was truly endless. 

The takeway from IBM’s earnings

IBM is certainly taking the right steps to reignite its business under the leadership of Arvind Krishna, especially when considering before he took charge, the company reported 22 quarters — or five years — of consecutive declines in revenue.

While the company doesn’t expect mega-growth over the next number of years, it is targeting a mid-single-digit increase in revenue for 2022 at the very least. At a forward price-to-earnings (P/E) ratio of just 12 and a generous 5% dividend yield, this could be one for value investors to keep an eye on.

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