IBM's new CEO takes over today — here's his plan

Key Points
  • Arvind Krishna takes over as CEO of IBM Monday, replacing Ginni Rometty. 
  • It's a pivotal moment for IBM, and not just because of the coronavirus pandemic.
  • In an email he sent to employees this morning, Krishna said he will focus on artificial intelligence and hybrid cloud as key technologies for the future.
Watch CNBC's full interview with new IBM CEO Arvind Krishna

As Arvind Krishna takes over as CEO of IBM Monday, he won't be shaking employee hands or preparing a speech for a crowd at the company's Armonk, New York headquarters. Instead he'll rely on tools like email, Slack and a webcast to help him get his message across: This company has survived hard times before. There's a plan for brighter days ahead.

It's a pivotal moment for IBM, and not just because of the coronavirus pandemic. Big Blue no longer towers over the technology landscape the way it did a generation ago. While executives have focused on shedding less profitable businesses, they have struggled to grow sales. In the recent market rout, IBM's market capitalization fell to less than $100 billion as of Friday's close, about a tenth the value of rivals Microsoft and Amazon.

Meanwhile, investors have tended to pay more attention to those West Coast darlings. But what if IBM's naysayers have it wrong?

Krishna says IBM is poised for great things. The new CEO is a technologist with business chops. He both led the company's renowned research division and was a driving force behind its $34 billion acquisition of Red Hat in 2018. He's been at IBM for 30 years. 

In an email he sent to employees Monday morning, Krishna said he will focus on artificial intelligence and hybrid cloud as key technologies for the future. He also made the case that the company's legacy of providing core technology make it indispensable during high-pressure times like today's.

"If there's one thing that this public health crisis has brought to light it is the ever essential role of IBM in the world. We are the backbone of some of the most critical systems," he wrote. "Today, more than ever, trust is our license to operate."

It's not a radically different strategy from the one his competitors are touting, nor is it a departure from IBM's recent messaging.

Under outgoing CEO Ginni Rometty, who the company says will remain as executive chairman through the end of 2020, IBM positioned itself as a time-tested provider of  flexible cloud infrastructure and services. And because of its long history supplying big customers, IBM said it was ideally positioned to help them transition away from on-premise systems.  

To this point, IBM's cloud efforts haven't had enough impact to meaningfully boost sales or profits. So the question might be whether Krishna will change the company's structure and approach in a way his predecessors didn't.

His inaugural message did suggest that change is afoot in the executive ranks. As the company had previously announced, Jim Whitehurst, previously the CEO of Red Hat, will become IBM president. Bridget van Kralingen, a dynamic executive who had led IBM's blockchain efforts, will become senior vice president of global markets, touching IBM's most important sales relationships around the world. Howard Boville, a longtime finance and telecom executive, will join IBM next month to lead the cloud business.

Can Krishna's leadership set IBM's stock price on a new trajectory, and return it to its historical perch atop the enterprise tech mountain? That probably depends on two things.

One: Can he make IBM a consistent top-line grower? Because IBM has been around for more than a century, it has a lot of old, profitable businesses like mainframes that are big and essential but not growing. They're great for cash flow, but not for the stock price. How do you keep them around to fuel the future, but prevent them from defining the company?

Two: Can he solve IBM's workforce conundrum? IBM had a massive payroll of more than 350,000 full-time employees as of the end of 2019. That's 2.5 times as many as Apple and 3.5 times as many as Google. Many of them work in IBM's services business, doing the kind of nuts-and-bolts software work customers need to prepare for the move to the cloud. How much does IBM invest in that business, considering it isn't growing and that cloud-driven trends threaten to shrink it?

They're tough problems, but not impossible to solve. Remember: Eight years ago, far too many industry watchers thought Microsoft was so far gone that it needed a former Ford and Boeing executive with fresh eyes to come and shake things up. Instead, the board promoted Satya Nadella, a technologist who had worked there more than 20 years.

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