- IBM says it is spinning off a huge chunk of its IT services business creating a new company with roughly $19 billion in annual sales.
- CEO Arvind Krishna said the move would allow IBM to focus on becoming more competitive in the cloud and AI.
- Analysts called the planned spinoff a smart move that underscores the transformation of the tech giant.
"IBM as an all-things-to-all people technology company is over," analyst Albert Pang told Business Insider. With the change, "they'll have a lot more focus and will be a lot more nimble. Clearly, it's a step in the right direction."
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IBM wants to be a leaner, nimbler technology giant.
The company announced Thursday that it is spinning off a huge chunk of its services business in order to focus more resources on its bid to be a stronger player in the cloud and AI.
"We are redefining the future of IBM and where we'll be putting our focus going forward," CEO Arvind Krishna said on a conference call. "We're creating two market leading companies."
Krishna said the new company "will be the world's leading managed infrastructure services provider," and that the business units in question recorded $19 billion of revenue over the past year.
The new company will emerge from part of IBM's technology services unit, the massive division that makes up roughly 40% of the tech giant's revenue. Krishna said IBM expects to complete the spinoff by the end of 2021.
That business, which provides outsourced IT services to clients, has taken huge hits with the rapid rise of the cloud, which lets businesses run networks on web-based platforms, allowing them to scale down or even do away with in-house data centers.
That trend has hurt traditional tech companies like IBM which makes money selling products used for private data centers. This was evident in IBM last earnings report when two of its major services units, which make up half of its revenue, posted revenue declines.
The change would enable IBM to concentrate on the goals Krishna laid out when he took over in May.
"I've said this before, we will be maniacally focused on being the best hybrid cloud platform and AI company," he said. "You'll see increased organic investment. You'll see increased M&A activity, all pointing to an innovation based company."
The planned spinoff underscored major changes at IBM. The company last year acquired Red Hat for $34 billion, as part of its bid to become a stronger competitor in the cloud market.
IBM under Krishna aims to be a dominant player in hybrid cloud, the emerging trend in which businesses set up networks in web based platforms, while maintaining applications and data in private networks. Krishna has previously said that he expects hybrid cloud to bea $1 trillion market within the next few years, and played a key role in the $34 billion acquisition of open source software giant Red Hat as part of its strategy in the field.
Analyst Albert Pang, president of tech research firm Apps Run the World, said the spin off is a smart move, noting that "the dismantling of IBM" is "a long time coming."
"IBM as an all-things-to-all people technology company is over," he told Business Insider. With the change, "they'll have a lot more focus and will be a lot more nimble. Clearly, it's a step in the right direction."
IDC President Crawford Del Prete echoed this view, saying the spinoff "brings focus to IBM's strategy of being a cloud platform and related software company while it continues to optimize the managed services business.
"These businesses need different profiles for care and feeding, and have very different growth rates, therefore by being separated, they can increase agility," he told Business Insider.
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