‘We run and transform the operations of the world’s biggest banks, airlines, telcos, manufacturers, insurers, healthcare providers, day in, day out. We do it for their security, their resiliency, their regulatory compliance, and all of that with optimization built in. Most of the Fortune 100 are customers,’ says Kyndryl CEO Martin Schroeter.

November 3, 2021, was a big day for global IT infrastructure services provider Kyndryl. That was the day the managed services business of IBM was spun out to become Kyndryl. Since then, Kyndryl, a publicly listed company ranked No. 9 in the CRN 2024 Solution Provider 500, has grown to become a major IT services force worldwide.

Kyndryl on Thursday celebrated its independence with its first investor day. For CEO Martin Schroeter (pictured), it was an opportunity to bring the world two messages: Kyndryl has moved away from the low-margin contracts and other legacy baggage it was saddled with when it spun out of IBM, and that it is now in complete charge of its own destiny.

Kyndryl is now seeing strong growth and increased business opportunities in the immediate and long-term future, Schroeter told investors.

[Related: Kyndryl Partners With Nvidia To Up Its GenAI Game]

The company has also signed strategic agreements with companies such as Google, Amazon Web Services, Microsoft, and ServiceNow, contracts it could not have under IBM, Schroeter said.

“These are the companies that matter in enterprise tech,” he said. “Given our relationships, each of them was really keen, really eager, to partner with us. That process of moving into the ecosystem [and] getting out of the narrowly defined IBM ecosystem, we doubled our addressable market, and now we’re tracking [to[ deliver a billion dollars of revenue just in hyperscaler-related revenue streams this year.”

Kyndryl has also invested in the areas where customers are also investing. Three of Kyndryl’s top global practices—cloud apps, data and AI, and security resiliency—are markets of over $100 billion, Schroeter said.

“And that’s where we’re smallest, and [those markets are] growing double digits,” he said. “This is where our customers are investing.”

Here are some key takeaways from Kyndryl’s first investor day.

Kyndryl Today

Schroeter defined Kyndryl as a services business that designs, builds, manages, and modernizes mission-critical hybrid IT environments.

“Those are the systems that the world depends on every day. … We run and transform the operations of the world’s biggest banks, airlines, telcos, manufacturers, insurers, healthcare providers, day in, day out,” he said. “We do it for their security, their resiliency, their regulatory compliance, and all of that with optimization built in. Most of the Fortune 100 are customers. We manage more than 60 percent of the world’s outsourced mainframes.”

Kyndryl keeps over 95 percent of its customers, with relationships that average over 10 years, Schroeter said. The company operates in 60 countries, and its engineering team has over 77,000 technical credentials, he said.

Business Is Accelerating

Kyndryl has seen a massive acceleration of its business since it was spun out from IBM, Schroeter said.

“The depth and the breadth and the scope of our expertise, our long-standing customer relationships with the companies that make the world work, they’re starting points for how we’ve been able to differentiate ourselves in the marketplace for IT services,” he said.

Kyndryl launched with scale, and since then built what it called the “Three As” strategy which included alliances, advanced delivery, and focus accounts. The company also increased its own efficiency, and signed multiple strategic alliances including with Microsoft, Google, AWS, SAP, Oracle, ServiceNow, Cisco, Dell, HPE, Lenovo, Nvidia, and others.

“These are the companies that matter in enterprise tech,” he said. “Given our relationships, each of them was really keen, really eager, to partner with us. That process of moving into the ecosystem [and] getting out of the narrowly-defined IBM ecosystem, we doubled our addressable market, and now we’re tracking [to[ deliver a billion dollars of revenue just in hyperscaler-related revenue streams this year.”

Kyndryl has also invested heavily in its own intellectual property, including its Kyndryl Bridge platform, which drives automation and enables upscaling, and in the process to date freed nearly 12,000 of its technologists to engage in higher-value revenue streams including consulting and backfilling attrition, Schroeter said.

Increasing Kyndryl’s Customer Value

Since leaving IBM, Kyndryl has focused on bringing more of its value to customers while working its way through and eliminating the no-margin, low-margin, or even negative-margin business it inherited from its former parent, Schroeter said.

“That also has generated substantial benefits for us,” he said. “We’ve been very successful at re-scoping, reshaping, and re-imagining these contracts. They have more automation. They have more consult work in them. They have more end-to-end, higher value services.”

The result, Schroeter said, is an increase in profitable business for the company.

“By the end of the sort of the medium term, which was the original time frame we used to talk about this, this is going to turn out to be $850 million of profit this year, on its way to more than a billion [dollars],” he said. “We originally said $800 [million]. We’re ahead of the pace. I think we get this could be worth a billion for us in the time frames.”

Focus On Consulting

Kyndryl Consult, which is the company’s advisory services business, has seen consistent double-digit signings and revenue growth, Schroeter said.

When Kyndryl was spun out of IBM, Kyndryl Consult was under 10 percent of its revenue, he said.

“We knew at the time that if we invested, if we brought the right skills, and if we engaged with our customers a little bit differently, it was an untapped opportunity for us, and so we did,” he said. “We invest in our people, we invested in our technology, we invested in our capabilities. And so now we have a $2.5-billion-plus revenue stream. It’s almost 20 percent of our revenue already. It’s on its way to a bigger number, and again, growing well above the market.”

At The Core: Kyndryl Bridge

Kyndryl Bridge, Kyndryl’s AI-enabled open integration platform, is a very powerful resource for customers, Schroeter said.

“It creates substantial value with unprecedented observability into the health of each customer’s IT operations, real-time insights, actionable insights, [and] saves them a lot of money,” he said.” It reduces their risk, and it helps them drive their own productivity. For us, Bridge is helping us open doors with our existing customers where we’ve had an opportunity to increase control consult engagements and expand the scope of the work of infrastructure which we do for them.”

Executing Ahead Of Schedule

Kyndryl over the last three years has laid out a strategy to expand margins and get back to growth, and has consistently executed on that strategy ahead of schedule Schroeter said.

“In our view, the ‘what we do’ versus ‘what we said’ ratio is very, very high,” he said. “And importantly, our operational progress gives us the opportunity to tackle a growing and addressable market. There are powerful secular trends that are shaping the evolution of IT and fueling growth in our customer base: the adoption of AI, cloud migration and management, modernizing complex hybrid IT environments, cybersecurity. And of course, industry-wide skill shortages are pervasive.”

These are the issues C-suite executives are discussing anywhere in the world, Schroeter said.

“And we sit at the heart of those trends,” he said. “We have repositioned this business to being about our customers’ future, not just about their past. So when our customers want to deploy AI, they look to us to help them with their data foundation work and their data architecture. When customers are struggling with security requirements or new regulatory requirements about resilience, they look to us to help them prioritize and to invest and to deal with the operational risks and the cyber threats that are out there. And as customers modernize their infrastructure, and as they address their tech debt, we’re the ones who get the call. We’re the ones who can ensure that they have the right workload on the right platform.”

Solid Business And Opportunity

Kyndryl’s business practices are aligned around the company’s expertise, customers’ requirements, and industry trends, Schroeter said.

Currently, core enterprise and cloud are each are about one-third of Kyndryl’s revenue, and the company expects very strong growth across applications and data and AI around security and resiliency and around the modernization efforts it is taking with the hyperscalers, he said.

“We look at our opportunity in two ways,” he said. “First, total addressable market. It’s a highly fragmented market. Total addressable market more than $575 billion, more than double now what we could play in pre-spin. So when we were captive, we could play in just less than half of that. So we’ve already unlocked an incredible opportunity that we can now capture with the investments we’ve made. You can also see our total market, $300 billion, is accessible, because that’s what our customers spend today.”

Of Kyndryl’s six global practices, three of them—cloud apps, data and AI, and security resiliency—are markets of over $100 billion, Schroeter said.

“And that’s where we’re smallest, and [those markets are] growing double digits,” he said. “This is where our customers are investing. Network and edge and digital workplace are also large markets, growing kind of mid-single digits. And the growth in all of these markets still is driven by the need to modernize, to optimize, and to secure increasingly complex IT systems. In other words, these secular trends are driving demand for all of our practices, for all of our services and our core enterprise practice.”

This includes Kyndryl’s mainframe service, Schroeter said.

“It’s a stable market,” he said. “Stable for us is OK. It’s OK. And as everybody knows, these hybrid IT estates are here to stay. And so our mainframe expertise, it’s hard to come by. We have more than anybody. We run 60 percent of the world’s outsourced mainframes. We have thousands and thousands and thousands of deep mainframe technical expertise. And because we have scale, we have the ability to invest in that, to create career paths. So we are the go-to place when our customers need those skills.”

Kyndryl Going Forward

Kyndryl has an opportunity to take advantage of everything the company has invested in to move in to where the world is over the next few years, Schroeter said.

“At a high level, the expectation we have for Kyndryl is we continue to evolve and focus on profitable growth and free cash flow,” he said. “Our strategic flywheel, though, for us at a high level, starts with our leadership in running and transforming operating systems at scale. That’s what we do. We operate at scale. We transform because of our leadership and our capabilities, and because our customers trust us and they love what we do. They allow us to manage their most mission-critical systems. Our large blue chip customer base, in turn, has allowed us and encouraged us to form and expand alliances with all the other leading technology providers.”

Schroeter said that, when in his earlier comments he said Kyndryl is accelerating, it was because the company is well positioned and well-invested for growth.

“The infrastructure services is also a foundation for our profitable growth,” he said. “They give us credibility, and they give us access to move into more consulting engagements. They expand our presence throughout our customers’ tech stacks. And with our efforts to step away from the [former IBM] empty calorie revenue largely behind us, that positions us now to return to growth. We still see growth starting next quarter and then continuous growth increasing over time driven by consult, which again has been a double-digit grower for us.”