IBM Accelerates Cloud Revenue Growth in Q2 2020

IBM announced its second-quarter 2020 earnings results. According to Arvind Krishna, IBM CEO, the company's cloud message is resonating with customers. Describing the key trends IBM sees and also how they relate to the mainframe, Krishna said in his prepared remarks that clients want to modernize apps, move more workloads to the cloud, and automate IT tasks. "They want to infuse AI into their workflows and secure their IT infrastructure to fend off growing cybersecurity threats. As a result, we are seeing an increased opportunity for large, transformational projects."

IBM, Krishna said, is focused on helping clients in the two major transformational journeys they’re on: hybrid cloud as well as data and AI. "Hybrid cloud is the dominant force driving change in our industry—but it’s far from universal adoption. Only 20% of the workloads have moved to the cloud. The other 80% are mission-critical workloads that are far more difficult to move. There’s a massive opportunity in front of us to capture these workloads."

IBM has a "tremendous advantage" with Red Hat (which IBM acquired in July 2019 for $34 billion), said Krishna. Linux, along with containers and Kubernetes, provides an architectural foundation, and OpenShift is the core product that captures all this, he said. "IBM has a vast software and middleware portfolio—which has now been containerized and runs on OpenShift and Red Hat Linux. The family of Cloud Paks we introduced in the second half of last year allows our middleware to run in a cloud-native environment and bridge our clients from the past to the future. This means clients can now deploy our software anywhere OpenShift runs. It is infrastructure-agnostic, across not just public and private clouds, but also our mainframes and power system platforms."

In his comments on the Systems segment of IBM's business in Q2 2020, Jim Kavanaugh, IBM’s senior vice president and chief financial officer, said the z15 mainframe has been well-received.

In the Systems segment, revenue was up 6% this quarter, and gross margin expanded over 400 basis points, he said.

"We again had good growth in both IBM Z and storage. Clients value the new innovation of the z15 mainframe and high-end storage. Similar to the first quarter, the z15 offered enterprises valuable capabilities, including remote management, security and importantly, scalability," Kavanaugh said.

"This quarter, clients also increasingly looked to IBM Z for resiliency and business continuity to keep mission-critical workloads running smoothly. We continue to offer additional hybrid cloud capabilities on z15. We released Red Hat Ansible Certified Content for IBM Z and launched a new cloud-native development offering, Wazi Workspaces, which allows developers to use industry standard tools from IBM Z to multi-cloud platforms, optimized on OpenShift. The growth in Z and storage was partially offset by weaker performance in Power, reflective of where we are in our product cycle and Power’s client base of smaller enterprises, which are impacted more during this pandemic."

Revenue at IBM decreased 5.4% to $18.1 billion while net income was 1.4 billion, down 46%.

Among the highlights of the quarter, according to IBM, were:

  • Cloud & Cognitive Software (including Cloud & Data Platforms which includes Red Hat, Cognitive Applications, and Transaction Processing Platforms) had revenues of $5.7 billion, up 3% (up 5% adjusting for currency), with growth in Cloud & Data Platforms, up 29% (up 30% adjusting for currency) led by Red Hat. Cognitive Applications and Transaction Processing Platforms declined. Cloud revenue more than doubled.
  • Total cloud revenue was $6.3 billion for the quarter, up 30% (up 34% adjusting for divested businesses and currency.
  • Total cloud revenue was $23.5 billion over the last 12 months, up 20% (up 23% adjusting for divested businesses and currency).
  • Red Hat revenue was up 17% (up 18% adjusting for currency), normalized for historical comparability.

Complete details are available from IBM at