Kyndryl, formerly IBM’s infrastructure services division, reported a sharp rise in first-quarter net income to US$56 million, up from US$11 million a year earlier, as contract renegotiations improved service margins.

Revenue for the June quarter remained flat at US$3.74 billion.

The company’s net income margin increased to 1.5%, compared to 0.3% in the same period last year.

Kyndryl has been restructuring inherited contracts, which lifted profits but did not drive revenue growth.

Sales in the consulting unit rose 30% as clients sought support for AI integration.

Revenue from large cloud providers reached US$400 million, an 86% increase from the previous year.

The company maintained its guidance for 1% constant-currency revenue growth for the current fiscal year.

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🔗 Source: Reuters

🧠 Food for thought

1️⃣ Margin optimization over revenue growth reflects broader industry shift

Kyndryl’s strategy of renegotiating inherited low-margin contracts, even at the cost of flat revenue, aligns with a wider industry transformation toward sustainable profitability.

The company’s net income margin jumped from 0.3% to 1.5% while revenue remained flat at $3.74 billion, demonstrating how focused contract restructuring can improve financial performance.

This approach reflects broader market dynamics where companies with profitable growth and scalable operations are better positioned to thrive, while those relying on low-margin services face increasing pressure.

The strategy is particularly relevant given that IT services companies historically operated on razor-thin margins, and current economic conditions are prompting a reassessment of pricing models.

2️⃣ AI and cloud expertise provides recession-resistant growth opportunities

Kyndryl’s 30% growth in consulting and 86% surge in cloud provider revenue to $400 million reflects the technology industry’s most resilient growth areas.

These numbers align with projections showing AI investments growing at a 29% compound annual growth rate from 2024 to 2028, while overall IT spending is expected to rise 9.3%1.

The IT services market is experiencing a shift from traditional service models to AI-driven solutions, with Gartner predicting 9.4% revenue growth for the sector in 20252.

This positioning supports why Kyndryl’s CFO described the company as “significantly insulated” from macroeconomic uncertainty, as businesses continue prioritizing mission-critical infrastructure and AI integration regardless of broader economic conditions.

The company’s focus on hybrid cloud management and AI consulting places it within the technology segments showing strong demand resilience during economic uncertainty.

Recent Kyndryl developments

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