IBM's first quarter results turned out to be a good debut for CEO Arvind Krishna as his clarity on Big Blue's strategy overcame demand uncertainty due to COVID-19 and a lack of guidance.
Make no mistake. IBM's first quarter results were a mixed bag and the company noted that clients toward the end of the quarter paused spending and went into cash preservation mode in the pandemic. Red Hat performed well though.
In other words, IBM's results could have been much worse. Krishna noted that IBM remains a go-to large enterprise partner in a time of uncertainty. He also laid out IBM's core pillars. Here's a look.
Trust and transparency. Just having Krishna on the earnings conference call was a change of pace. Typically, IBM CFO James Kavanaugh led quarterly calls. Krishna, who became CEO April 6, indicated he will be a regular and that plan was welcomed by analysts. Krishna said:
One of the first commitments I made was to be transparent and open. Not just with our employees, and our clients and partners, but with our investment community as well. In that spirit, I will participate, not just today, but in earnings calls from now on.
With better clarity on the economic recovery, we will provide an update at the end of the second quarter. But please note, there's a difference between the ability to accurately predict a near-term revenue or earnings per share number and confidence in our business over the longer term. And I have confidence in our business.
Strong technology will sell faster. Krishna said IBM needs to be technically focused and create technology that proves itself.
We will continue investing, including acquisitions. As you have seen, we have divested parts of software and services that did not align with our focus areas. This will continue. The past few weeks have catapulted us into the world of virtual selling and remote delivery. These entail new ways of working. This is a reminder, we should always be asking ourselves, "is there a better way to do this?" If you don't question why you're doing things, you'll never evolve into something better. What's clear is our confidence in our strategy and our portfolio, which is focused on hybrid cloud and AI.
Services matter. He said:
I want to be clear, the ultimate outcome that I am absolutely committed to is growth for our company as we emerge from the pandemic. A key area of focus is to ensure that IBM leads into major transformational journeys that our clients are on: cloud and AI. IBM has already built enduring platforms: mainframe, services and middleware. The fourth one is hybrid cloud. Clients, however, need more than a platform. They need our deep industry expertise. This is why the services that clients rely on to build and manage the hybrid cloud platform is a massive opportunity for IBM. It's nearly half of the $1.2 trillion hybrid cloud opportunity.
Clients first. Krishna spoke of his management team, which includes Jim Whitehurst, and how it is focused on clients and growth. Krishna also noted that IBM's Net Promoter Scores are improving, and the company aims to delight customers.
It is essential that we deepen our understanding of our clients' journey to hybrid cloud and AI, which will result in hybrid cloud as the fourth platform. We remain obsessed with continually delighting clients, and we have further established IBM as the gold standard for good tech. All these are underpinned by our culture that fosters growth and an entrepreneurial mindset. I see these as our collective priorities.
As our clients adjust to this new normal, they need a partner they can trust. IBM is that partner. This isn't just about helping our clients navigate the crisis but to ensure that they emerge stronger and more resilient. To that end, we have taken concrete steps to bundle existing offerings to address the shifting needs of clients such as leveraging hybrid cloud, using AI for automation and enabling remote work.
Growth is the KPI. Krishna was asked about what KPIs should be used to measure IBM. The answer was simple: Growth. He said:
We should look at growth as the metric, albeit once we begin to emerge from the pandemic. And it's impossible for me to predict how long this is going to be. You mentioned scenarios, but I listened to all of you and your peers, and I don't have any particular crystal ball on this. The estimates are all over the place in both the depth and the length of the impact. Now the other one that I think you should hold us to in metric other than revenue or a pure financial metric, is the number of clients on which we are engaged on hybrid cloud engagements. We talk about it from a product perspective, we talk about 2,200 clients to date. But as you begin to wrap those also with services engagements. I think that's the second metric that's effectively a leading indicator towards the overall revenue metric because that's the preconditioner for that. And that's where we're driving the entire company to. That's what I'm focused on. I run a war room on that every week, and that's what our sales forces are incented to go get done.