IBM, a technology stalwart with a rich history dating back to the 1950s, has successfully navigated a decade-long transformation, honing its attention on two key pillars: hybrid cloud computing and artificial intelligence (AI). In a bid to stay relevant in the ever-evolving tech landscape, the company has strategically divested various businesses, but it has staunchly retained its legacy—the mainframe systems.
Mainframes: A time-tested backbone
While not as central to IBM’s operations as in previous eras, mainframes continue to play a pivotal role, particularly in industries where these hulking systems are deeply ingrained. As of the close of 2022, a staggering 45 of the world’s top 50 banks rely on IBM’s mainframe systems. The z16, IBM’s latest iteration, launched in April 2022, introducing innovations such as an integrated AI accelerator and allowing financial institutions to conduct real-time AI-powered analyses, significantly mitigating fraud risks.
The Q3 2022 results underscored the impact of the z16 launch, with mainframe system sales soaring 98% YoY. This surge catapulted total infrastructure revenue by 23% YoY and had ripple effects, potentially boosting software and services sales.
The longevity advantage and the COBOL conundrum
One distinguishing feature of IBM’s mainframes is their longevity. These systems seamlessly support applications written decades ago in COBOL, a vintage programming language still powering critical systems. However, the declining popularity of COBOL and the shrinking pool of engineers proficient in it pose challenges for companies dependent on this code. IBM has responded with an innovative solution – the Watsonx Code Assistant for Z, an AI-powered assistant designed to translate COBOL applications into modern Java code. This not only aids customers in software modernization but also opens up a new revenue stream for IBM.
IBM’s growth trajectory: Cloud, AI, and beyond
In recent years, IBM has found a stable position by providing platforms, software, and consulting services to enterprises eyeing IT infrastructure modernization and AI adoption. While the mainframe segment may not be a growth engine like hybrid cloud and AI, it forms an integral part of IBM’s comprehensive offerings.
IBM projects a revenue increase of 3% to 5% this year, excluding currency impact. Anticipating a mainframe launch in 2024, the company expects a sales boost in the latter half of the year. However, economic uncertainties remain a wildcard that could sway IBM’s revenue.
Investment Outlook
Investors evaluating IBM should recognize its transformational journey and strategic focus on hybrid cloud and AI. The recent success of the z16 underscores the potential impact of future mainframe launches. However, it’s essential to consider the broader economic landscape as well as IBM’s efforts to reposition itself for sustained growth in the cloud and AI era.
As IBM navigates the dynamic tech landscape, its focus on hybrid cloud computing and AI positions it for steady growth. The mainframe, while a longstanding component of IBM’s portfolio, continues to contribute significantly, especially with innovations like the z16. The launch of Watsonx Code Assistant for Z addresses challenges posed by legacy COBOL code, showcasing IBM’s commitment to supporting its customers in modernizing their software infrastructure. Investors, as always, should weigh the long-term potential against short-term market fluctuations, recognizing the broader industry trends shaping IBM’s trajectory.
Source: https://www.cryptopolitan.com/ibms-strategic-focus-hybrid-cloud-and-ai/