{"id":4791,"date":"2021-12-02T06:19:26","date_gmt":"2021-12-02T06:19:26","guid":{"rendered":"http:\/\/localhost\/projects\/horsesforsources\/?p=4791"},"modified":"2022-04-26T17:16:32","modified_gmt":"2022-04-26T17:16:32","slug":"who-will-buy-kyndryl_120221","status":"publish","type":"post","link":"https:\/\/www.horsesforsources.com\/who-will-buy-kyndryl_120221\/","title":{"rendered":"Who\u2019s going to buy cut-price Kyndryl?"},"content":{"rendered":"

The financial markets have fired warning shots across the bows of Kyndryl\u2019s management. To be more precise, it’s more a barrage of artillery fire, as investors obsess with bashing tech firms\u00a0that sustain the old, as opposed to their hugely inflating the valuations of the shiny new tech stuff. What they tend to forget is that much of the old can’t be ripped and replaced overnight as the majority of the Global 2000 is in a desperate rush to hurl their legacy into the cloud:<\/p>\n

Our Pulse study of 800 Global 2000 enterprises clearly illustrates two factors that dominate the focus of leaders:\u00a0 moving operations into the cloud at speed and training staff to understand how to balance digital business needs in a virtual environment.\u00a0 Surely there is still some value left in the likes of a\u00a0Kyndryl\u00a0as firms demand immediacy of cloudification and a desperate need to plug talent gaps fast?<\/p>\n

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In short,\u00a0Kyndryl\u00a0has started life as a separate entity with still-colossal revenues of $19 billion. After a lackluster first earnings report<\/a> the market cap was a mere $4 billion, which has now slipped even lower. However, these warning shots are not just a worrying sign for Kyndryl\u2019s new management, but also for service providers weighed down by legacy infrastructure services such as Atos, DXC, and the like.\u00a0 With tech infrastructure commoditizing\u00a0faster than knock-off AirPods\u00a0on Amazon , the need to support rapid complex enterprise change is where the focus is firmly shifting, and where these traditional infrastructure providers can help.<\/p>\n

Kyndryl is guiding the markets on the larger addressable market and operational efficiencies<\/strong><\/p>\n

Executives at Kyndryl were suggesting that the separation from IBM would more than double their addressable market from $240 billion pre-spin to $510 billion by 2024. Intelligent Automation, data services, cloud services, security and resiliency are said to be the segments that would drive an expansion of 7% CAGR growth in those segments. The key levers for this expansion are meant to be upskilling of talent around cloud capabilities, a more energy-efficient operation of data centers, and a strong increase in the application of Intelligent Automation. However, in its first earnings statement, perhaps not surprisingly, the big picture is still that of decline, with revenues in Q3 decreasing YoY to $4.6 billion.<\/p>\n

While the launch of Kyndryl was underwhelming both in terms of communication as well as conveying a compelling investment thesis, executives were pointing to the new partnership with Microsoft<\/a> as a reference point for new strategic options after the separation. Furthermore, the company announced a tuck-in acquisition of Samlink<\/a>, a Finnish service provider focused on financial services (very familiar to Cognizant<\/a>). Yet, despite this progress, the (ridiculously) low market capitalization is hanging like a millstone around Kyndryl\u2019s neck as there are several IT services firms that can easily digest an acquisition with this price tag, confident of quickly upping that $3.5b valuation to at least $10b. First off, opportunistic M&A moves.<\/p>\n

Possible Scenarios. Which firm has the cojones to aggregate legacy infrastructure?<\/strong><\/p>\n

The purists will argue that Kyndryl is a dead asset unless someone revives its mojo, is prepared to cannibalize it\u2019s own assets, and move legacy workloads to the cloud.\u00a0 But surely there are some juicy clients to be won over and profitability to be eeked out if Kyndryl is handled with surgical gloves.\u00a0 Moreover, let’s not forget about the awesome talent that came across from the IBM divestment including the leadership of the respected Martin Schroeter<\/a>\u00a0who knows this business inside and out, and will now have the chance to make some incisive changes outside of the IBM shackles..<\/p>\n

So let\u2019s examine the suitors which would have little problem raising $3-5bn to seal the deal:<\/p>\n