CEO Arvind Krishna: IBM To Invest $1B In Cloud Ecosystem, ‘Elevating The Role Of Partners’

“The channel is quite capable,” said IBM CEO Arvind Krishna on the company’s fourth quarter earnings call. “I would rather put more money into the channel and work with them to go after that [market].”

IBM CEO Arvind Krishna Thursday said the company is investing $1 billion in “rapidly expanding” its partner ecosystem as it sharpens its focus on hybrid cloud and artificial intelligence (AI).

“To accelerate consumption of our hybrid cloud platform, we are also rapidly expanding our ecosystem by adding hundreds of new partnerships with global system integrators, independent software vendors and major third-party software partners, and also elevating the role of partners,” said Krishna. “We are investing $1 billon in our ecosystem so that our partners can play a much bigger role in fulfilling the many needs of our clients.”

The expanded focus on partners comes with IBM simplifying its go-to-market model and betting bigger on the partner ecosystem, with the number of customer groups at the company being reduced from from 50 to just two.

[Related: IBM Taps Former CFO, Global Markets Executive To Lead ‘NewCo’ Spinoff]

That sales restructuring, said Krishna, is something he is “deeply, deeply passionate about” as he moves to transform IBM into a fast-moving, hybrid cloud and AI powerhouse. “We are evolving in reaction to client needs,” he said. “We operated with what I would call a more homogenous model that kind of went across all our segments, all our clients for a long time.”

The new model focuses IBM sales reps on top customers utilizing IBM Garage hybrid cloud services, said Krishna, leaving the rest of the IBM client base to be served by the partner ecosystem.

The second segment under the streamlined sales structure will be “channel ready,” served by partners without competition from IBM client reps, said Krishna. “The channel is quite capable,” said Krishna. “I would rather put more money into the channel and work with them to go after that [market].”

There are also clients that “deeply value” the IBM technology specialists but do not need the generalist IBM client managers, said Krishna. “We are going to take that money and pour it into more specialists who can then cover those clients.” He said.

“There is going to be a large part—which is ecosystem led—with the systems integrators, resellers, distributors,etc.,” he said. “We believe this simplicity is going to drive a lot more outcomes for us and our clients.”

Mark Wyllie, CEO of Flagship Solutions Group, a Boca Raton, Fla.-based IBM cloud partner that has provided transformative cloud services for both NASCAR and The Atlanta Falcons, said he is excited about the “big opportunity” for partners in the wake of the restructuring, but it must be “executed properly” in the field.

“IBM needs to make sure this gets down to the street level with the thousands of IBMers in the field rowing the boat in the same direction as partners,” he said.

Flagship expects to post double-digit IBM sales growth this year particularly around cloud, Red Hat and security with a new state-of-the-art CyberOps center manned by the Flagship team, said Wyllie. “IBM has the flat-out best products for hybrid cloud, AI and security,” he said.

Krishna said he expects the structural changes—which will be consistent around the globe—will unlock “ a few points of revenue growth” for IBM. That said, Krishna cautioned, that revenue growth will take “six months to flow through the system.”

Overall, Krishna said, he expects IBM to deliver “sustainable mid-single digit” revenue growth once it completes the spin off at the end of this year of its $19 billion managed infrastructure business into a new venture known for now as “NewCo.” That spin off of the Global Technology Services’ (GTS) managed infrastructure services unit is on track, with IBM set to release an investor filing on the company in the fall.

Krishna’s proclamation about elevating partners came as IBM reported a six percent year-over-year drop in sales to $20.37 billion for its fourth fiscal quarter, ended Dec. 31, which was below the $20.67 billon Wall Street consensus.

Excluding charges of more than $2 billion for structural changes, IBM reported earnings of $1.9 billion, or $2.07 per share, for the quarter, down 56 percent from the year ago quarter but above analyst consensus estimates of $1.79 per share.

Sales in the Cloud & Cognitive Software group, which includes Red Hat, were down 4.5 percent to $6.8 billion in the quarter, compared with $7.16 billion in the year-ago quarter.

IBM shares Thursday were down $9.75, or more than 7 percent, to $122.05 in after-hours trading.

When asked about his “conviction” with regard to revenue growth, Krishna said he sees an improved economy in 2021 compared with last year. He said customers are moving forward with digital transformation based on Red Hat OpenShift.

Customers are “signing up for bigger and bigger projects around modernization,” said Krishna. “They need to move on with their businesses. There is only so long that you can belt-tighten and not come out worse, so they’re sort of getting past their belt-tightening, we think, somewhere in the next six months. So that is why we have a lot more conviction.”