Sounds like preparation for an RA.
By: Lauren Ohnesorge – Senior Staff Writer, Triangle Business Journal
Jun 8, 2022
https://www.bizjournals.com/triangle/news/2022/06/08/why-ibm-red-hat-are-ready-for-the-next-recession.html
In a recession, “no company is immune,” and that includes IBM.
Big Blue, which acquired Raleigh-based Red Hat in 2019, spends time on “scenario modeling around any macroeconomic exogenous impact," IBM CFO Jim Kavanaugh told analysts Tuesday during the Bank of America 2022 Global Technology Conference. “I think all CFOs are doing this today,” he said.
His comments come as the World Bank slashes its forecast for global growth and warns most countries are headed for a recession.
But IBM (NYSE: IBM) has history on its side, Kavanaugh said, as it’s fared better than some of its peers during challenging macroeconomic periods.
“We have built in diversification by design,” he said.
That includes geography – as IBM operates in 170 companies, and not all regions go through the same economic waves. But it also includes industry diversification, as IBM participates in 17 different sectors.
“They all don’t go through the same curves of recessionary impacts over time,” Kavanaugh said. “And we saw that through the pandemic. Some industries actually accelerated, others got hurt and we were on the good end of that diversification curve.”
IBM also has the advantage in that much of its focus is on large enterprises. IBM serves more than 95 percent of the Fortune 500 firms, and 80 percent of its revenue is in the top 1,000 accounts, Kavanaugh said.
“So many recessionary times hit consumer, small-media business early,” he said. “We are a little bit immune to that.”
Kavanaugh said the company's portfolio makeup also puts IBM at an advantage. The portfolio mix has over 50 percent of its revenue recurring – “and that’s high value recurring revenue,” he said. That includes software – which amounts to more than 40 percent of Big Blue; 80 percent of software business is in high-value recurring revenue, he said.
“So the diversification of [geographies], of industries, of client segmentation and our business mix provides some stability in revenue, profit and cash during these very challenging times,” Kavanaugh said.
Kavanaugh said that IBM is a “fundamentally different company” than when he took on the CEO role four years ago. Its accelerated transformation, led by the acquisition of Red Hat, has the company zeroing in on what IBM believes to be the “two most transformative technology shifts" that are going to occur in the market place: Hybrid cloud and artificial intelligence.
Three years into the Red Hat deal, and “we’ve been growing high teens overall, taking share," Kavanaugh said.
IBM is one of Research Triangle Park's largest employers, and its Red Hat subsidiary is headquartered at Red Hat Tower in downtown Raleigh.