Will smart acquisitions help this tech giant reclaim its crown?

It wouldn’t be an exaggeration to say that IBM has spent the last decade floundering, trying to stay relevant after completely failing to understand the threat that cloud computing posed to its business. But the company’s leadership has clearly learned from those mistakes, and with new management and a handful of multibillion-dollar acquisitions, the company is determined to make up for lost time.

Until recently, IBM dominated the technology market, gaining a reputation for creating the most powerful and easy-to-use computers in the business world.

It enjoyed nearly a half-century in the spotlight. Founded in 1924, Big Blue rose to prominence before World War II and eventually became a leading maker of business computers in the 1970s. It was still a household name well into the 1990s, with its popular ThinkPad laptops widely regarded as among the best, and its powerful mainframe servers a staple of the corporate data center.

But a series of missteps followed that led IBM to a dangerous decline. After deciding to sell its PC business after being overtaken by the likes of Dell and HP, IBM completely missed the opportunity to enter the cloud, leaving its once-lucrative mainframe business in crisis as organizations began abandoning their on-premises data centers. It was a low blow that left IBM in a state of paralysis, and the company struggled with more than a decade of declining revenue before it finally recovered.

The Vision of a Hybrid Cloud

IBM’s rebirth was sparked by the hiring of a new CEO, Arvind Krishna, who took the helm of the company in April 2020 after playing a key role in getting it back on track as senior vice president of IBM’s Cloud and Cognitive Software business. Krishna realized the company had to take drastic action to make up for lost time in the cloud, and he is credited with architecting the company’s $34 billion acquisition of open-source software maker Red Hat, a little over a year before he took the top job.

The acquisition of Red Hat paved the way for IBM to change course and become a “cloud” company, like its rivals Amazon, Google, and Microsoft, and four years later, the company proudly proclaims itself a “hybrid cloud company,” helping its enterprise customers build and scale cloud computing environments, implement automation, and build next-generation AI tools. Its latest full-year financial results show that more than 70% of IBM’s revenue now comes from its software and consulting business units, which are now largely focused on Red Hat and cloud services.

“The 2019 acquisition of Red Hat and the spinoff of Kyndryl made IBM a different company than it was 10 years ago,” Will Healy noted in an analysis for the Motley Fool. “Control of Red Hat gives it an advantage in hybrid cloud. That seems to have made it a must-have cloud stock, as it is now the world’s fifth-largest cloud company.”

Artificial Intelligence Efforts Finally Pay Off

IBM’s renewed momentum is further aided by its long-standing interest in artificial intelligence, which has suddenly become one of the hottest trends in the tech industry, gaining more prominence by the day. The company has been a powerhouse in AI research and development since the 1990s and has achieved some impressive milestones, with its Watson AI system notching significant victories over the world’s best players in games like Jeopardy, Chess and Go.

Watson AI is now at the heart of one of IBM’s most promising innovations, the watsonx platform. With a solid technology foundation, a powerful AI stack, a robust hybrid cloud platform, a consulting organization with deep expertise, and a growing ecosystem, watsonx has become one of the premier platforms for building next-generation, industry-specific, generative AI applications.

Beyond the advancement of AI, IBM is attracting attention as one of the few alternatives to the Nvidia GPUs on which the vast majority of today’s AI applications are based.

“While GPUs are clearly better at handling unstructured data, industries that are not graphics-centric, such as banking and government, tend to favor CPU-based approaches over AI. According to IBM, IBM’s Power 10 outperforms an equivalent x86 server by 42 percent, delivering lower latency while significantly improving overall security,” explained Rob Enderle of Enderle Group.

What’s next?

With its return to the cloud services market, IBM now aims to capture one of the most important emerging segments of the cloud services market: infrastructure as code.

IaC is the name given to the technologies that enterprises use to automate the management of their cloud infrastructure. It’s big business, with one study from Emergen Research predicting that the industry will grow at a compound annual rate of 24%, from just $640 million in 2021 to more than $4.45 billion by the end of 2030.

Andrew Martin of virtual cloud infrastructure startup Control Plane explained the importance of infrastructure configuration management (IAC) during a recent panel discussion hosted by Env0, saying the industry has more or less standardized on the declarative nature of infrastructure configuration management.

“We generate a blueprint, we have the ability to do static analysis (on that blueprint), and then we simply apply it to our cloud infrastructure,” Martin said. “We used to use duct tape and string. That’s why I see IaC as the foundational building block for building infrastructure for all the applications and systems we use today.”

The fundamental nature of IaC explains why IBM was so eager to make another blockbuster acquisition in April of this year, paying $6.4 billion to buy HashiCorp, widely considered a leader in the IaC industry. HashiCorp’s Terraform platform sets the standard for IaC, enabling cloud engineers to automate every aspect of their cloud infrastructure. While there has been much speculation about where IBM will take HashiCorp, most analysts agree that the deal will help IBM solidify its position as a leader in the hybrid cloud industry.

Futuriom Research analyst R. Scott Raynovich wrote that IBM is the ideal home for HashiCorp and Terraform because its Red Hat division has become the “crown jewel” of cloud management technology. “HashiCorp would be a technical addition to Red Hat that could also integrate with IaC tools like Ansible, which are also owned by IBM,” Raynovich wrote. “Red Hat also has a tradition of leading open source tools toward commercialization.”

Let’s not forget that IBM is also one of the main stakeholders in a project that may turn out to be the next technological breakthrough after artificial intelligence – namely in the field of quantum computers.

Although quantum computers are likely still years away, IBM is among a handful of companies making big strides in the field and hopes to become the world’s first to ship a 4,000-qubit system by the middle of next year. Quantum computers will be exponentially more powerful than classical computers, capable of solving complex problems—that would take years for today’s most powerful supercomputers to process—in seconds. If IBM really is the first to crack quantum technology, its cloud rivals could be left to fend for themselves for years to come.

There is no more room to miss the boat

Thanks to Arvind Krishna, IBM has finally woken up from its long slumber and is once again setting new standards in sectors it believes are key to the future of computing.

Hybrid cloud, infrastructure management, and generative AI are already among the biggest growth engines in technology, and quantum computing could be the next. Rather than miss the opportunity again, IBM has spent billions of dollars, through research and acquisition, to be at the forefront of each.

The future is by no means certain and there is still a lot of work to be done, but it looks like IBM has finally learned from its past mistakes.