IBM CEO’s risky move: Wall Street frowns on Whitehurst departure – stock drops 10%

Editor’s note: Rick Smith is the editor and cofounder of WRAL TechWirer which launched in January 2002.

RESEARCH TRIANGLE PARK – More changes at IBM and the departure of Jim Whitehurst is getting a thumbs down from Wall Street. Is the great ship IBM sailing toward an unseen iceberg floating in the tumultuous, very competitive seas of the cloud computing market?

Writing about IBM for more than two decades has always been an adventure – from covering technology breakthroughs in artificial intelligence, cloud computing and quantum computing. Then there has been the downside – the downsizing, the layoffs, the “reorgs.” BUT it’s hard to think of a transition period as tumultuous – dare I say dangerous? – than the one the tech giant is undergoing right now under Chair and CEO Arvind Krishna.

Rick Smith, WRAL TechWire’s editor and a cofounder, writes The Skinny.

The departure of longtime Red Hat CEO Jim Whitehurst that Krishna announced Friday along with a host of other management changes shook Wall Street, driving down IBM shares by 10%. Just last month IBM shares climberd abouve $150 since 2018 as Wall Street seemed to support the Krishna doctrine. They had rallied from under $96 in March 2020 as the pandemic hit and Krishna took over as CEO with Whitehurst at his side.

Ginni Rometty talks with Jim Whitehurst in 2019. (Image from Red Hat video)

However, turmoil rattles investors. Now they must not like what they are seeing at Krishna’s IBM. He took over as CEO in April 2020, with Whitehurst becoming his No. 2. Just last January, IBM made Krishna chairman, replacing former CEO Ginni Rometti who – with Krishna’s and Whitehurst’s support – had negotiated the $34 billion buyout of Raleigh-based Red Hat three years ago.

In a few short months Krishna has banked IBM’s future almost entirely on the cloud where Amazon (AWS) and Microsoft (Azure) are the dominant players. Hard to watch TV without seeing an IBM “hybrid cloud” commercial. And Red Hat software is at the very core on IBM’s tech play. He’s also pushed through several cloud-related acquisitions.

Whitehurst steps down at IBM but will remain ‘senior advisor’, CEO says

Krishna also has moved to split the company with IBM Global Services set to be spun off as a separate venture later this year. Known as Kyndryl, that group earlier this week announced its management team and organizational structure as well as market targets.

Silver lining is the cloud but …

So what happens if Krishna’s cloud strategy doesn’t pay off? What’s the fallback position? Can AI Watson configure a path to survival or will quantum thinking be required?

Right now, it’s cloud or nothing. Read his own words in Friday’s announcement:

“Our hybrid cloud and AI strategy is strongly resonating with clients. I believe we are at a watershed moment in our journey. As the world begins to reopen, IBM has a unique opportunity to be positioned for a new and exciting era of growth, continue to accelerate the rate and pace of execution of our strategy, and strengthen our client-centric culture and our ability to provide technical expertise.”

Good luck, Mr. Krishna. The work future of thousands of IBMers and Hatters across North Carolina and the world is in your hands.

Whitehurst says via LinkedIn he’ll stay on as an advisor.

Back when the IBM-Red Hat deal was announced, The Skinny speculated that Whitehurst could/would replace Rometty. Didn’t happen. A No. 1 at Red Hat became a No. 2 as president.

His track record is clear – more than 12 years of growth at Red Hat, taking the company from Linux player to Linux champion. Under the IBM mantle, Red Had revenue growth has exceeded IBM’s.

The bet here is that Whitehurst’s advice and counsel will be needed, especially if the cloud bet leads IBM into stormy seas.