IBM is splitting into two public companies, with a spin-off handling the firm's legacy IT infrastructure work, allowing IBM to focus on new high-margin businesses, particularly cloud services and AI. The 109-year-old company announced the news this week, which follows CEO Arvind Krishna's longterm plan to streamline the sprawling business. Krishna took the reins of IBM in April 2020 after working on its $34 billion acquisition of open source software firm Red Hat from 2018 onwards. Red Hat's software is key to IBM's new hybrid cloud offerings. In a call with analysts, Krishna presented the split as the latest in a long line of divestments by IBM, as the company has sought to find more profitable ground throughout its long history.
International Business Machines (IBM), one of the most iconic names among American corporations, said it will split the company into two by the end of next year in order to focus on the growing and higher-margin cloud computing and artificial intelligence markets. IBM said it will spin off its legacy infrastructure services unit as a yet unnamed public company (NewCo), while the other company, the "new" IBM, will largely be engaged in the cloud and artificial intelligence businesses. IBM Chief Financial Officer James Kavanaugh told Reuters that the new company (NewCo) will have about 90,000 employees and its executive structure will be decided over the next few months. IBM said it expects to record almost $5 billion in expenses related to the separation. After the separation is completed, each company's dividend policy will be determined by its respective board of directors.
IBM announced that it plans to spin off its $19 billion managed infrastructure services unit into a separate company by the end of next year. Arvind Krishna, the CEO, said that the spin-off would free up IBM so the parent company can focus on higher margins and higher growth in the hybrid cloud market. The company's focus needs this narrowed vision, as Krishna believes that IBM will be on a better revenue growth trajectory as it chases the $1 trillion hybrid-cloud goal. "IBM has always transformed to fit the times and help clients move from one technological phase to the next," he wrote in a blog post. Arvind believes that the ultimate IBM goal is the through-line that connects all the significant moments that mark its history.
IBM, a company that originally made its name out of its leadership in building myriad enterprise hardware (quite literally: its name is an abbreviation for International Business Machines), is taking one more step away from that legacy and deeper into the world of cloud services. The company today announced that it plans to spin off its managed infrastructure services unit as a separate public company, a $19 billion business in annual revenues, to help it focus more squarely on newer opportunities in hybrid cloud applications and artificial intelligence. Infrastructure services include a range of managed services based around legacy infrastructure and digital transformation related to it. It includes things like testing and assembly, but also product engineering and lab services, among other things. A spokesperson confirmed to me that the deal will not include the company's servers business, only infrastructure services.
On my first day as CEO, I made a commitment to the growth of IBM. I stated that a maniacal focus on our open hybrid cloud platform and AI capabilities is key to this outcome. Day by day, product by product, project by project--we are dedicated to helping our clients unlock the immense value this represents. Building on the solid foundation Ginni has put in place, we are focused on accelerating our growth strategy and seizing the $1 trillion hybrid cloud opportunity. As we work toward this goal, two things are becoming increasingly clear.