Kyndryl’s first year yields revenue challenges and a plan to do more

In the year since it left IBM, Kyndryl has made several big strides in establishing itself as a major player in infrastructure service management, but challenges remain.

For example, while it has greatly expanded its partnerships and technology, its financial situation has not shown a similar bump. Just this week the company reported second-quarter earnings of $4.2 billion, a year-over-year decline of 9%. The company has reported similar results in other recent quarters.

“Currency effects and energy costs are superseding the operational progress we’re making,” Kyndryl CFO David Wyshner told Wall Street analysts during the company’s 2Q 2023 call this week. “And while the risk of a global recession has clearly increased, we continue to see broadbase demand for digital transformation in infrastructure services.”

Still, Kyndryl is big with nearly $19 billion in annual revenue, 90,000 employees, operations in more than 60 countries, and a customer base that includes 75 of the Fortune 100. At the time of its spinoff, CEO Martin Schroeter said that Kyndryl can expand its addressable. market to more than $500 billion by mid-decade.

The company is working hard to increase profits. For example in the first six months of its fiscal 2023, Kyndryl signed contracts related to cloud hyperscaler alliances with an aggregate value of more than $425 million, with a goal of $1 billion in hyperscaler signings for the year, the company reported.

The company is in the early stages of establishing its own space in infrastructure-modernization where it competes with Accenture, DXC Technology, Atos, Fujitsu, Infosys, Rackspace, Tata Consultancy Services, and Wipro.

“Overall, I believe that Kyndryl is doing a good job of establishing itself as an independent entity and one that adapts to the evolving needs of business clients,” said Charles King, president and chief analyst of Fund-IT, Inc.

Growing alliances and partnerships, especially with big cloud players, is one of Kyndryl’s main strategies. It has partnered with Google, AWS, Microsoft, Cisco, VMware, Elastic, Citrix, Lenovo, SAP, ServiceNow, Cloudera, Lenovo, Dell, and many others.

“In the beginning, in the cloud arena we only offered IBM Cloud services, which entered the market late with 4% of the market share, so we did not have 96% of the market,” said Harish Grama, the global Kyndryl company. training leader for the cloud. “But within a month of the cycle we signed Microsoft Azure, and then we signed a similar agreement with Google on GCP and then AWS to immediately give us the ability to play in 80-plus that percentage of the market. So we’ve really grown the ecosystem that our customers can use now and in the future.”

Increasing partnerships is only part of the growth strategy; significantly, the addition of new technology and services is another component. The Kyndryl Bridge is an important part.

Announced in September, Bridge brings together the tools, partnerships, intellectual property, and processes it has accumulated over years of delivering infrastructure services and uses them to provide capabilities as a service supported by applications to control and manage enterprise infrastructure.

“Out of the blocks, Kyndryl’s leadership had to do two things,” King said. “First, it needs to maintain an even keel in delivering the traditional services its customers rely on. Second, it needs to develop new offerings that demonstrate business and technological acumen. The wide range of strategic partnerships that that Kyndryl has inked over the past year go a long way to delivering those same points. However, homegrown solutions, like Bridge, show that the company is also expanding and fully utilizing its own assets and expertise. .

Bridge’s goal is to integrate disparate environments including cloud, multicloud, and edge networks using Kyndryl’s engineering expertise and its alliances with infrastructure vendors. This can provide greater access and control over critical tools, along with the expertise of Kyndryl professionals in cloud, data, and AI; security and stability; mainframe modernization, among other areas, Kyndryl said.

“Over time, Bridge will expand and grow, and we will move from being observant of how to navigate our services and improve IT operations to self-service capabilities and even the ability to -subscribe to digital in providing and managing services, including services based on partners’ technologies,” CEO Schroeter said on the company’s financial analysts’ call.

Another area where Kyndryl expects significant growth is its recently announced Kyndryl Consult business advisory practice. The company says signups for advisory services are up 62% year-over-year, and it expects the business to grow as it integrates with Consult. The company said it expects to use Consult in conjunction with Bridge to develop real-time data insight to solve complex enterprise problems such as securely integrating a multicloud—hybrid cloud world with existing resources and networks.

Another new part of the company’s plan is mainframe modernization, and it recently extended its partnership with Microsoft to include mainframe connectivity to cloud applications and workloads.

The extension connects Kyndryl’s zCloud mainframe service with Microsoft’s Power Platform, a low-code application and workflow-automation package that brings access to cloud services including Microsoft Azure, Office 365 and Teams.

The goal is to make it easier for organizations to access and integrate mainframe-based data with cloud-based resources and combine that data with other information to build new applications.

Kyndryl also said it is working with Google Cloud and its recently announced Dual Run service to help move mainframe workloads to the cloud.

“In the past we wanted to sell you a mainframe,” Grama said. “We are no longer in that business. Of course if you want to buy properly, but if you want to modernize your current mainframe environment, we can help you. If you want to remove the mainframe or add it to the cloud, we’ll help you do that too. The bottom line is we know the mainframe, and we know they’re going to be there for a long time, and we can help organizations do whatever they want with them,” Grama said.

Observers expect Kyndryl to expand its customer base to smaller businesses. “Kyndryl has a thorough understanding of and robust solutions for large enterprises,” said King. “The company is underrepresented and underrepresented in smaller organizations. Given the many opportunities in the SME space, I expect Kyndryl to create offerings for those clients.”

Kyndryl faces the same global economic headwinds as any other tech services vendor, King said.

“It also takes time, patience and effort to get new businesses—as Kyndryl does with strategic partners—and keep running,” he said. “Kyndryl needs to prove it can adapt to ongoing business changes and challenges, and help its customers successfully meet and respond to those same challenges.”

Copyright © 2022 IDG Communications, Inc.

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