IBM to break up 109-year old company to focus on cloud growth.
Tech giant IBM announced Thursday that it is spinning off its infrastructure services business to focus more on cloud computing, a higher-margin business that has seen a boost as companies accelerate their digital transformation.The company intends for this new division, with a business of 19,000 million dollars and an order book of 60,000 million, to be listed separately on the stock market and to establish itself as a world leader in the sector, where it competes with companies such as BMC.
IBM had already trimmed its legacy businesses over the years to focus on the cloud, in order to offset slower software sales and seasonal demand for its servers and mainframes. The multinational, which in recent years has given ground to Amazon, Microsoft and Google in the burgeoning cloud sector, where customers rent computing power instead of buying it, is confident that with digitization, companies will increasingly turn to outsourced infrastructure and the use of cloud services.
The new company, whose name is still unknown, will start with 90,000 workers and 4,600 clients in large companies in 115 countries, including 75% of Fortune 100 companies. The company, which expects to complete the excession before the end of 2021 You’ve seen the news boost your stocks 10% on Wall Street before the market opens. IBM said it expects the division to be a tax-free operation for shareholders.
Arvind Krishna, who replaced Ginni Rometty at the helm of the multinational last April, said that IBM’s software and solutions portfolio will account for the majority of the company’s revenue after the split. Krishna is recognized as the architect of the largest acquisition made by IBM in its history, that of the software company Red Hat, which was bought last year for 34,000 million.
The blue giant hopes the spin-off will allow it to simplify its operations and focus on the business of its cloud services platform, which represents a trillion-dollar market opportunity. The move is reminiscent of the one HP gave in October 2014, when the company was split into HP Inc, which encompasses its PC and printer businesses, and HP Enterprise, responsible for software, services and infrastructure for the corporate market.
“The purchasing needs of customers for infrastructure services and applications are divergent, while the adoption of our hybrid cloud platform is accelerating,” said Krishna, for whom “now is the right time to create two leading companies in the market focused on the best they do. IBM will focus on its open hybrid cloud platform and artificial intelligence capabilities, “to make more than 50% of its revenue recurring.
For its part, the new company “will have greater agility to design, execute and modernize the infrastructure of the most important organizations in the world,” with a market opportunity of 500,000 million dollars, according to the multinational.
The executive added that both companies will have a great capacity to associate and capture new market opportunities, “creating value for customers and shareholders.” “The success we’ve had with Red Hat gives us confidence and we believe this is the right move,” he insisted.
Rometty has also argued that IBM, which will stay with a business with a turnover of about 58,000 million dollars, is positioning itself for the new era of the hybrid cloud. “As two independent companies, they will both capitalize on their respective strengths. IBM will accelerate clients ‘digital transformation journeys and NewCo [as the new company is quoted] will accelerate clients’ infrastructure modernization efforts. This approach will result in a greater value, greater innovation and faster execution for our customers. “
The announcement of the future IPO of this division has taken place within the framework of the advance of the preliminary results of IBM corresponding to the third quarter of the year. The US company closed the quarter with revenues of $ 17.6 billion, slightly above the $ 17.56 billion expected by analysts polled by Reuters. In the third quarter of 2018 the firm had slightly higher revenues, 18,000 million.