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

In the year since it spun out of IBM, Kyndryl has made a number of big strides in establishing itself as a core infrastructure service management player, but challenges remain.

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

“Currency and energy-costs impacts are superseding the operational progress we’re making,” Kyndryl CFO David Wyshner told Wall Street analysts during the firm’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 yearly revenue, 90,000 employees, operations in over 60 countries, and a customer base that includes 75 of the Fortune 100. At the time of its spinoff, CEO Martin Schroeter said Kyndryl can expand its addressable market to more than $500 billion by mid-decade. 

The company is pushing hard to drive up revenues. For example in the first six months of  its fiscal 2023, Kyndryl signed contracts tied 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 only at the beginning of establishing its own place in infrastructure-modernization where it compets with Accenture, DXC Technology, Atos, Fujitsu, Infosys, Rackspace, Tata Consultancy Services, and Wipro.

“Overall, I believe Kyndryl is doing an excellent job of establishing itself both as an independent entity and one attuned to the evolving needs of enterprise clients,” said Charles King, president and principal analyst of Pund-IT, Inc.

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

“At the beginning, in the cloud arena we only offered IBM Cloud services, which were a late entrant into the market with 4% of the market share, so we were out of 96% of the market,” said Harish Grama, Kyndryl’s global practice leader for cloud. “But within one month of spin we signed with Microsoft Azure, and then we signed a very similar deal with Google on GCP and then AWS so that immediately gave us the capability of playing in 80-plus percent of the market. So we’ve really ramped up the ecosystem that our customers can use now and in the future.”

Increasing partnerships is only part of the growth strategy; significantly, adding new technology and services are another part. Kyndryl Bridge is a key component.

Announced in September, Bridge amalgamates the tools, partnerships, intellectual property, and processes it has amassed through years of delivering infrastructure services and uses it to provide as-a-service capabilities bacjed by applications to control and manage enterprise infrastructure.

“Out of the blocks, Kyndryl’s leadership needed to do two things,”King said. “First, it needed to keep an even keel in delivering the traditional services its customers depend on. Second, it needed to develop new offerings that demonstrated its business and technological acumen. The wide range of strategic partnerships Kyndryl has inked in the past year have gone a long way to deliver on both those points. However, homegrown solutions, like Bridge, show that the company is also broadening and fully leveraging its own assets and expertise.”

The intent of Bridge is to integrate diverse environments including cloud, multicloud, and edge networks using Kyndryl’s engineering expertise and its alliances with infrastructure vendors. It can provide greater access and control of critical tools, plus the expertise of Kyndryl professionals in cloud, data, and AI; security and resiliency; mainframe modernization, among other areas, Kyndryl stated.  

“Over time, Bridge will expand and grow, and we’ll move from observability going from how to navigate our services and enhance IT operations to self-service capabilities and even the ability to digitally subscribe to provision and manage services, including services based on partners’ technologies,” said CEO Schroeter on the company’s financial analysts call.

Another area Kyndryl expects big growth from is the recently announced Kyndryl Consult business-advisory practice. The company said signings for advisory services increased 62% year-over-year, and it expects that business to grow as it is integrated into Consult. The company said it expects to use Consult in conjunction with Bridge to develop real-time data insights to solve complex enterprise problems such as securely integrating the multicloud—hybrid cloud worlds with existing resources and networks.

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

The extension ties together 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 migrate mainframe workloads to the cloud. 

“In the past we wanted to sell you a mainframe,” Grama said. “We are not in that business anymore. Of course if you want to buy one that’s fine, but if you want to modernize your current mainframe environment, we’ll help you. If you want to move off the mainframe or augment it to the cloud, we’ll help you do that, too. The bottom line is we know mainframe, and we know they will be out 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 into smaller enterprises.  “Kyndryl has a thorough understanding of and robust solutions for large enterprises,” King said. “The company is less well known among and represented in smaller organizations. Given the rich opportunities in the SME space, I expect Kyndryl will build out offerings for those clients.”

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

“It also takes time, patience and effort to get new businesses—like those Kyndryl is pursuing with strategic partners—up and running sustainably,” he said. “Kyndryl needs to prove that it can adapt to continual business changes and challenges, and help its customers successfully address and respond to those same challenges.”