IBM's overall business is making progress toward a turnaround, but IBM Security revenues are shrinking while most rivals are growing in the cyber market.
Amid that backdrop, IBM plans to further modernize its security portfolio in 2022 and the company also remains in the market for potential acquisitions -- though the targets have to have reasonable valuations, CEO Arvind Krishna (pictured above) and CFO James Kavanaugh indicated during IBM's Q4 2021 earnings call -- held on January 24, 2022.
Among the key takeaways for the quarter:
- Overall revenue for continuing operations was $16.7 billion, up 6.5 percent from Q4 of 2020.
- Software revenue rose 8 percent; consulting revenue jumped 13 percent; infrastructure revenue was flat; and hybrid cloud revenue was up 16 percent.
The results reflect IBM's spin-out of the Kyndryl managed infrastructure services business in November 2021. Moreover, multiple IT consulting acquisitions appear to be paying dividends.
IBM Security: Financial Metrics, Challenges
In the earnings call, IBM disclosed that "security revenue declined modestly in the quarter driven by lower performance in data security," though security revenue grew 5 percent for the year, the firm added.
In stark contrast...
- The market for managed security and professional security services in the Americas will generate an 11.3 percent compound annual growth rate (CAGR) from 2021 to 2025, according to MarketsAndMarkets. Meanwhile, MSSP Alert’s September 20221 research finds that the world’s best MSSPs will grew roughly 16 percent in 2021 vs. 2020.
- The market for managed detection and response (MDR) security services will reach $2.2 billion by 2027, which represents a 16.7% CAGR (compound annual growth rate) from 2021, according to Infinity Business Insights.
Among the challenges that IBM didn't mention on the call: Balancing managed security services while using IBM's own software as well as third-party security software. The challenge:
- IBM's security software team wants the IBM MSSP business to leverage and sell serves based on home-grown IBM code, sources tell MSSP Alert.
- On the flip side, the IBM MSSP business -- which ranks as a Top 250 MSSP -- often wants to leverage best-of-breed security software from third-party suppliers, sources have told MSSP Alert.
IBM Security: Launches, Acquisitions and Valuations
No doubt, IBM wants to boost its security business. Toward that end, the company in December 2021 launched a data security solution called Guardium Insights, with "further plans to modernize the broader portfolio throughout the year," CFO James Kavanaugh mentioned.
Moreover, IBM has completed the acquisition of ReaQta, which "leverages AI and machine learning to automatically identify and block threats at the end point," Kavanaugh added.
Meanwhile, IBM may be looking to make more security acquisitions -- though CEO Arvind Krishna would like to see more reasonable valuations in the M&A market. He noted:
"M&A has to have an economic benefit for our company and our shareholders. Have valuations come down? Certainly, some targets may become more approachable that were not previously approachable. And I've said before: We have a little over $20 billion of flexibility over the next three years. So I'll just leave it at that. That's our total flexibility. As prices come down, certainly, more things come within range."
Lofty Technology Valuations: The World Is Watching
Buyer concerns about lofty valuations aren't new. OpenText CEO Mark Barrenechea expressed similar concerns in August 2021. OpenText ultimately acquired Zix AppRiver in December 2021, and partnered with Blackpoint Cyber to introduce MDR services for MSPs in October 2021.
As for IBM, we'll be watching for next moves in the security market. Recent volatility on Wall Street may hint that more reasonable valuations are coming...
