IBM to split into two focusing on Cloud business and Infrastructure

IBM announced that it is splitting itself into two public companies to focus on high-margin cloud computing business.
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IBM will list its IT infrastructure services unit, which provides services including technical support for data centers, as a separate company with a new name by the end of 2021. IBM CEO Arvind Krishna engineered IBM’s $34 billion acquisition of cloud company Red Hat last year, Reuters reported.

“We divested networking back in the 1990s, we divested PCs back in the 2000s, we divested semiconductors about five years ago because all of them didn’t play into the integrated value proposition,” Arvind Krishna said on a call with analysts.

“IBM is essentially getting rid of a shrinking, low-margin operation given the cannibalizing impact of automation and cloud, masking stronger growth for the rest of the operation,” said Wedbush Securities analyst Moshe Katri.

The company has shifted focus to cloud growth in recent years, aiming to make up for slowing software sales and seasonal demand for its mainframe servers.

Arvind Krishna, who replaced Ginni Rometty as CEO in April, said IBM’s software and solutions portfolio would account for the majority of company revenue after the separation.

IBM said it expects to incur nearly $2.5 billion in expenses related to the unit spin-off. The company did not mention about any possible job reduction.

The company also said it expects third-quarter revenue of $17.6 billion and an adjusted profit per share of $2.58.

IBM will accelerate its hybrid cloud growth strategy to drive digital transformations for its clients.

IBM will separate its Managed Infrastructure Services unit of its Global Technology Services division into a new public company.

IBM will focus on its open hybrid cloud platform and AI capabilities. IBM’s new company will have greater agility to design, run and modernize the infrastructure of the world’s most important organizations.

IBM will move from a company with more than half of its revenues in services to one with a majority in high-value cloud software and solutions. IBM will also have more than 50 percent of its portfolio in recurring revenues.

IBM’s Managed Infrastructure Services Company has relationships with more than 4,600 technology-intensive, highly regulated clients in 115 countries, including more than 75 percent of the Fortune 100, a backlog of $60 billion, and more than twice the scale of its nearest competitor.

IBM’s new company will be focused on managing and modernizing client-owned infrastructures, a $500 billion market opportunity.

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