Innovate for Resiliency: Why Tech Leaders Should Study IBM Right Now
Innovate for Resiliency: Why Tech Leaders Should Study IBM Right Now
Yesterday IBM showed that it is a beacon of tech resiliency in what is an otherwise tough year for tech stocks. Big Blue beat analyst expectations with revenue of $13.85 billion. IBM’s stock is up 2% YTD, (for comparison Oracle is down 20%, and the Nasdaq composite is down 30%.) Here are four key takeaways from IBM’s performance that tech and innovation execs should pay attention to:
Only Advertise What You Can Commercialize - For years, many wondered if IBM’s investments in AI were just a marketing gimmick rather than a viable source of revenue (myself included). IBM responded to the cynics: data and AI revenue rose 8.2% to $7.3bn. IBM’s continued elevation of AI from marketing experiment to central earnings driver lends credibility to its investments into blockchain and quantum computing. Maybe IBM will be the first to monetize these technologies at a meaningful scale. We’ll see….
Don’t believe the hype: IBM’s stock was valued (on a P/E basis) about 10% lower than its competitors for most of the past 4 years. Even though its revenue and earnings were growing faster. Put another way IBM hasn’t been sexy for a long, long time. That its sexiest moment in recent memory was winning Jeopardy! with an AI robot tells you everything you need to know. Its innovation value has been perpetually undervalued.
Consulting is a boat in the storm. Professional Services revenue is considered lower quality than as-a-service product revenue because it’s not recurring and has long, expensive sales cycles. Well, it also turns out that it’s less volatile during a downturn. By not shrinking from its consulting roots during the as-a-service boom, IBM is proving more resilient during the bust.
‘We bought you because we love you.’ IBM’s acquisition of RedHat was a smart pivot to hybrid cloud. It was also a much needed cultural overhaul for IBM. RedHat was younger, more punk rock, faster, and culturally less hierarchical than Big Blue. IBM embraced RedHat without bear-hugging the life out of it. The marriage between the two is not without conflict - but it’s working. Revenue from Red Hat jumped 18%.
What do you think? Is IBM’s earnings resilience a one quarter blip, or a teachable inflection point for tech/innovation executives?
