IBM's aim of becoming a hybrid cloud powerhouse following the spinoff of its managed infrastructure business remains in reach, with Big Blue reporting 17% growth in first-quarter hybrid cloud revenue. And after adding more than 200 hybrid cloud platform clients in Q1, IBM has big plans to expand its software, consulting and infrastructure footprint, the company shared during its latest earnings call.

IBM SVP and CFO Jim Kavanaugh noted the company's $14.2 billion in Q1 2023 revenue is a "solid step toward delivering on the year" and on IBM's medium-term model to deliver mid-single-digit revenue growth.

IBM CEO Arvind Krishna explained the most significant pieces of hybrid cloud are offering "a platform that can straddle multiple public clouds, private cloud and on-premise properties" in an open, secure and flexible manner. "This platform-centric strategy is producing solid results," he said.

Because IBM's strategy is "based on a platform-centric approach to hybrid cloud and AI [artificial intelligence], not only do we benefit from the platform itself, but IBM and our partners also generate a multiple of software and consulting revenue on that platform," Kavanaugh said. "It's an attractive economic model."

The vendor's hybrid cloud platform is based on Red Hat at its core, which provides "powerful software capabilities based on open source innovation," Krishna added. IBM software is optimized for that platform and helps organizations tackle AI, automation and security within business operations.

Software and consulting revenue are the two main growth drivers for IBM, and together they account for 70% of the company's annual revenue. Software revenue grew 15% and consulting grew 17% during this quarter.

Revenue from Red Hat increased 21% year-over-year thanks to "good performance" across the Red Hat portfolio. IBM also gained share via Red Hat's OpenShift Kubernetes orchestration platform and Red Hat Enterprise Linux (RHEL), which execs touted as the company's "foundational hybrid cloud offerings."

"You can see our success in capturing that value in our hybrid cloud revenue, which was up 17% in the first quarter and over the last 12 months. Revenue from our full stack cloud capabilities from infrastructure up through consulting represents $20.8 billion of revenue over the last 12 months or 36% of our total," Kavanaugh added.

Kavanaugh also touted IBM's investments in AI, hybrid cloud and quantum computing as both organic and inorganic ecosystem developments that support hybrid and multi-cloud demand with hyperscaler-level capabilities, like IBM's acquisition of Neudesic.

IBM's "flat" infrastructure performance saw hybrid infrastructure revenue drop 2%, though it was offset by 4% growth in infrastructure support. IBM's hybrid infrastructure segment, which includes the zSystems mainframe portfolio that just released its z16 offering, also saw an 18% drop in revenue growth. IBM noted these declines were, "as always," impacted by product cycles.

The z16 data center rack mount configuration allows enterprise customers to integrate IBM’s sustainability-focused hybrid cloud platform into a wider range of data center environments. While the improvements to z16 are "really nice enhancements," one investor noted "people have been calling for the death of mainframe for a decade," even if "that death has been greatly exaggerated."

Krishna argued that mainframe demand is healthy, with a "lot of our clients seeing additional volumes because mainframe serves really well as a system of record – as that transactional engine that helps drive our clients' business."

"We saw over the last three years more growth and better adoption of mainframe than we have seen in prior cycles. We expect from early signals that we are going to see that continue over the next couple of years. That said, we've got to go out and execute. We've got to make sure that our clients actually are able to quickly deploy these applications that they use, and that will allow us to grow the mainframe over this coming cycle as well," he noted.