Kyndryl, the IBM spin-off focused on managed infrastructure services, continues to shrink while the MSP, MSSP and cloud managed services markets grow. But Kyndryl has pieced together a longer-term MSP growth plan that apparently leans heavily on hyperscalers (Amazon Web Services, Microsoft Azure and Google Cloud); transforms its service delivery capabilities; and fixes elements of its business that generate substandard margins.
Clues about Kyndryl's business strategy emerged in the company's quarterly earnings statement -- issued February 28, 2022. The earnings statement also contained some hard truths -- including:
- Kyndryl revenues were $4.6 billion for the quarter ended December 31, 2021 -- down 8% percent from the corresponding quarter last year.
- Net loss was $740 million -- larger than a $719 million net loss from the corresponding quarter the year earlier.
How is Kyndryl possibly shrinking when the company competes in growth markets such as IT consulting, managed services, cybersecurity and cloud services? The short answer involves former ownership. Under IBM's watch through late 2021, Kyndryl couldn't really build global partnerships with the fastest-growing IT platform providers (i.w., AWS, Azure and Google Cloud).
Kyndryl Rapidly Builds Cloud MSP Partnerships With AWS, Microsoft and Google
Fast forward to 2022, and Kyndryl has rapidly righted those wrongs. Kyndryl now has global partnerships in place with each of the major cloud providers -- along with a 5G relationship with Nokia, and a VMware Cloud on AWS relationship. The VMware partnership is particularly impressive, considering VMware's multi-cloud and hybrid cloud strategy largely competes with IBM's Red Hat strategy.
In a prepared statement about Kyndryl's Q4 2021 earnings, CEO Martin Schroeter said:
"In the fourth quarter, we built on Kyndryl's market leadership and delivered early progress as an independent company that is now free to pursue a substantially larger addressable marke. We're encouraged by our momentum in establishing new partnerships, expanding technology collaborations, deepening existing relationships and winning new customers. We're also launching three major new initiatives, all with a focus on driving long-term profitable growth."
Those three major efforts, according to the Kyndryl earnings release, include the following (word for word):
- Kyndyl will increase signings, certifications and revenues with its new ecosystem partners and capabilities, which Kyndryl anticipates will enable it to capture up to $1 billion in signings linked to cloud hyperscalers by the end of fiscal year 2023 (ending March 31, 2023)
- Kyndryl will transform services delivery, which the Company expects will allow it to enhance quality, pivot to new revenue streams, save up to $200 million in annualized costs by the end of fiscal year 2023, and generate additional savings in future years
- Kyndryl will proactively address elements of its business in which it generates substandard margins, allowing the Company to capture more value for its mission-critical services. Kyndryl estimates this initiative will drive $200 million of annualized benefit by the end of fiscal year 2023 and incremental future savings.
Does that third point suggest Kyndryl is looking to sell off, close or downsize certain low-margin businesses? We'll be seeking clues from the MSP's earnings call.
Kyndryl's Managed Services Market Focus
As an independent company, Kyndryl is now seeking to drive growth across six managed services markets. They include:
- Cloud
- Applications, Data & AI
- Security & Resiliency
- Core Enterprise & zCloud
- Network & Edge
- Digital Workplace
Still, Kyndryl will likely wind up competing against IBM’s own consulting business in the managed cloud services provider market. Indeed, IBM has been busy acquiring cloud cloud consulting companies worldwide. Moreover, Kyndryl could potentially compete against the IBM Security business, which ranks among the world’s Top 250 MSSPs, according to MSSP Alert research.
And of course, Kyndryl will face intense competition from global systems integrators such as Accenture, Atos, Capgemini, Deloittte, and other firms that already have growing cloud MSP business practices.
