If there was any doubt International Business Machines (IBM 1.05%) could ever get back on a growth track, it was just wiped away. Granted, the recent spinoff of what's now called Kyndryl Holdings helped, and last quarter's numbers are being compared to the suppressed results achieved in the fourth quarter of 2020. On a dollar-for-dollar, product-for-product basis, though, CEO Arvind Krishna's plan is working. Ol' Big Blue is fully leveraging 2019's acquisition of Red Hat to capitalize on the hybrid cloud market's incredible growth.
Two simple charts readily tell the tale.
IBM drives measurable growth in a tough environment
After years of slowing revenue growth that in 2012 outright evolved into a prolonged revenue contraction, it would be understandable if you'd given up on this former titan. It may be time to give IBM a fresh look, though. Although it's taken Krishna nearly a couple of years to plot a new company course that included the spinoff of technology services that now operate under an umbrella called Kyndryl, the remainder of what he took over back in early 2020 is doing well.
Image source: Getty Images.
That wasn't a foregone conclusion just a few weeks ago. While the company painted a broad picture of what the removal of Kyndryl meant, most investors were left wondering how future results would compare to past results with Kyndryl's revenue out of the picture. Further obscuring then/now comparisons is the company's renaming and re-categorization of some of its business lines, in conjunction with the Kyndryl spinoff.
As it turns out though, IBM did crunch the numbers of what its past results would have looked like were what's now called Kyndryl not in the picture. It just went largely unnoticed because the data was released on Dec. 27, 2021, when most investors had anything else on their minds.
Here's a visualization of that historical data, adding in the fourth-quarter results posted on Monday of this week.
Data source: IBM Corp. Chart by author.
Yes, at least for its software and consulting arms, revenue reached its best levels since IBM as we know it today came into existence, up 8.2% and 13.1%, respectively. Infrastructure matched its second-best-ever level.
The gross profit trends look just as compelling despite slightly lower gross profit margin rates. Software's gross profits grew 8.8% year over year to nearly $5.9 billion, while infrastructure profits are near modern-era highs. Consulting earnings remain so-so, but aren't in decline. Also bear in mind that IBM's consulting business helps support its infrastructure and software businesses' growth.
Data source: IBM Corp. Chart by author.
The fact that this growth is taking shape in the midst of a lingering semiconductor supply shortage and a pandemic that won't abate makes IBM's fourth-quarter growth all the more impressive.
An encouraging (even if limited) clue
One quarter doesn't make a trend, to be fair. That's especially true when you're talking about the fourth quarter of last year, which was rife with skewed comparisons.
The thing is, a closer look at the above charts shows us that software and consulting revenue has actually been growing steadily since mid-2020, as have software and consulting profits. That fact that the newly streamlined IBM just logged some of its best year-over-year growth seen in the past couple of years (in the midst of still-difficult circumstances, no less) only bolsters the bullish case, underscoring the idea that the company will be able to capture more than its fair share of the hybrid cloud computing market Krishna says will eventually be worth $1 trillion.
The exciting detail for investors is, Mordor Intelligence estimates this market will grow at an annualized clip of 21% en route to that $1 trillion figure.
