January 28, 2023

IBM Spinoff Kyndryl Starts Quest for Growth

International Business Machines Corp.

completed the spinoff of its $19 billion information technology services business on Wednesday, betting that independence will make it easier to reverse a decline in revenue.

The new company,

Kyndryl Holdings Inc.,

began trading Thursday on the New York Stock Exchange under the symbol KD. Shares closed at $26.38, down 7.4%, according to FactSet data.

Kyndryl will help companies modernize and manage their IT infrastructure, taking its place as one of the largest players in a competitive market.

Kyndryl CEO Martin Schroeter.



Photo:

Kyndryl Holdings Inc.

Chief Executive

Martin Schroeter

said Kyndryl expects to show revenue growth in 2025, now that customers are less likely to see it as tied to IBM technology.

“The spin now allows a whole new set of customers who felt as though…we were just there to sell the IBM technologies to now open up a new set of discussions,” Mr. Schroeter said.

Kyndryl revenue declined 4.6% to $19.35 billion for the year ended Dec. 31, 2020, from $20.28 billion in the prior year, according to a document included with the company’s Form 10 filing with the Securities and Exchange Commission. Revenue declined 7% in 2019 from $21.796 billion in 2018, according to the document, which has three years of financial data.

For the six months ended June 30, 2021, the company had revenue of $9.5 billion, down 0.5% from the same six-month period the year before.

Kyndryl reported a net loss of $2.01 billion for 2020. Chief Financial Officer

David Wyshner

said that the company had income last year of $67 million on a pretax adjusted basis, accounting for legal, audit, advisory and other internal restructuring charges. The company has about $2 billion in cash with net debt of $1.2 billion, he said.

It ended 2020 with about 4,400 customers, down from about 4,600 customers in the prior year.

There is a lot of opportunity for Kyndryl outside of IBM, according to

Alastair Edwards,

chief analyst at research firm Canalys. The question is how effectively it can go out and capture it, he said.

Some of Kyndryl’s rivals are further ahead in areas such as helping customers manage multiple cloud providers, he said.

Kyndryl remains highly dependent on IBM’s mainframe customer base, according to Mr. Edwards. Its move into higher-value services will require an investment of money and time in training and technical certifications, he said. Kyndryl also needs to establish its own identity in the market, which will take time, according to Mr. Edwards.

Kyndryl is looking to support businesses running operations on cloud platforms such as those from

Amazon.com Inc.,

Microsoft Corp.

and

Alphabet Inc.’s

Google. It faces rivals including

Accenture

PLC,

Atos SE,

Capgemini SE,

HCL Technologies Ltd.

and

Tata Consultancy Services Ltd.

Kyndryl will increase its investment in training its workforce of about 90,000 people to handle different cloud platforms, according to Mr. Schroeter, an IBM veteran who previously served as IBM senior vice president for global markets. He also served as IBM’s chief financial officer.

Mr. Schroeter joined IBM in 1992. He retired in 2020, but returned in January to lead Kyndryl.

Kyndryl has been mainly focused on managing IBM customers’ data center equipment, a business that has been contracting as corporations move to the cloud, according to Mr. Schroeter. “The on-prem world is shrinking dramatically. And that’s where…Kyndryl is overweighted,” Mr. Schroeter said.

Mr. Schroeter said Kyndryl will now focus more attention on the global managed cloud services market, which is growing.

The company also plans to broaden its offering in software-applications management, according to Mr. Schroeter. “We show up now with a different mission,” he said.

“If Martin and Kyndryl create a culture of employees and customers first and don’t fall into the trap of short-term P&L gains, they should be able to grow,” said

Michael Synn,

senior vice president of infrastructure technology at fintech company

Broadridge Financial Solutions,

a customer of Kyndryl’s predecessor organization at IBM for more than 10 years.

Big tech firms are investing in data centers as they compete for the $214 billion cloud computing market. In this video from 2019, WSJ explains what cloud computing is, why big tech is betting big on future contracts.

Write to John McCormick at [email protected]

Copyright ©2021 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8

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