RESEARCH TRIANGLE PARK – In his own words, IBM CEO Arvind Krishna concedes that not all of Big Blue’s customers are embracing the forthcoming split of the tech giant with the so-called “NewCo” built around its Global Technology Services group.
In a conference call with Wall Street analysts, Krishna said he and other executives have been reaching out to clients in order to explain IBM’s division strategy. He also defended the spinoff of “NewCo” in his opening remarks.
“So, the quarter will tell us whether we are right or not,” Krishna said. “But based on everything I can see, I am confident that actually we’ll be able to see most of the deals progress to a satisfactory conclusion.”
Investors, however, aren’t overwhelmed with his comments or the earnings announced Monday. IBM shares were down more than 2% in pre-market trading today.
While reaction has generall been positive, Krishna noted that some 20% of customers still have concerns and questions.
Amit Daryanani, an analyst with Evercore ISI, asked Krishna: “I would love to just hear the feedback you’ve gotten from your customers over the last ten days post the announcement of defense and it is pretty what I am kind of thinking about as the – pause in signing longer term deals so the spin is done and that could get perhaps that applies or spend growth.”
Krishna’s response, according to a transcript provided by investor news site SeekingAlpha:
“Yes, great question, Amit. So, as you can imagine, this is something in which I think the only word I can use is, we are obsessive about this topic. We had our lists out. We knew exactly of what clients might be concerned about and I wouldn’t say that we are 100% perfect, but I think we feel very, very good that we were correct in our estimations of the level of concerns.
“To you give you a sense, we sort of internally, this is not something that we also tell the client, but based on the reaction, I mentioned that we already spoken to hundreds. So you can think that but now that we are ten days in, we have already spoken to at least between two and three hundred of the top clients where there is a strong intersection or where there is a very heavy SPINCO [“Spinco means a wholly owned Subsidiary of the Company,” according to LawInsider],revenue base or deals that could be on the table.
“And from there, we have gotten back over 80% our corridor in the great to good to not really concerned. And I’ll come back and give some color on why we believe that’s true. Then there are some – we’ll do enough on both sides that they do have some concerns.
“Both of those concerns are around, who is team that will be providing service. Who is the person whose going to be on the ground and we should be very clear that SPINCO is going to head out on day one with $19, the same management team on the ground who runs it from the client up is going to be team that does it.
“Yes, it’s a corporate structure that we’ve put in place, but that’s not the team on the ground, just to be clear. They have very high satisfaction with the majority of their clients and that is because they bring both service excellence in terms of the service and the upturn that they provide, but also they bring very deep technical skills which is kind of gives them permission and the trust to play.
So, when I put all of that together, I think that there is a couple of dozen clients where we just have to make sure that we can tell them who is the team there is going to be servicing them and as they begin to get comfort on that, I can see the level of anxiety reduce. But as I said, over 80%, they understood what was happening and also many clients the majority on one or the other of naturally for them there is going to be less of a concern.”