IBM Spinoff Should Rejuvenate Cloud Effort

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Finally. On October 9th, IBM announced that it will split itself up by breaking up the company into two pieces, spinning off its legacy IT services businesses to focus on cloud. IBM shares rose about 6% on the news the first day, thought they have pulled back to be close to where they were when the deal was announced.

The change is sorely needed — IBM CEO Arvind Krishna is wise to pursue the strategy as the company needs some sort of catalyst to drive growth in the era of the cloud explosion. This deal should put IBM in a better position to compete with other cloud titans such as Amazon Web Services (AWS), Google, and Microsoft Azure by putting more focus on its prized Red Hat unit. It should also enable IBM to compete more strongly against other large tech conglomerates pursuing cloud, such as Hewlett Packard Enterprise (HPE) and Oracle. This is the catalyst needed that could push shares higher.

IBM’s share price has been stagnant for many years — especially compared with other cloud giants such as Microsoft and Amazon — frustrating investors that would like to capture the upside it the company’s vast cloud holdings, where it is regarded by many as the #3 cloud infrastructure player behind Amazon Web Services (AWS) and Microsoft.

NewCo on the Go

In the move, expected in 2021, the bulk of IBM’s IT Infrastructure Services will be spun off as an independent public company, leaving IBM free to focus entirely on hybrid cloud and artificial intelligence (AI), with its Red Hat division as the anchor.

The new spinoff, temporarily nicknamed NewCo, will have about 90,000 employees and $19 billion in revenue and continue to function as IBM’s partner, doing business with its former parent as needed while maintaining enough autonomy

IBM Bets Big on $1T Hybrid Cloud Market With Business Spin-off

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There have been major developments this year amid the coronavirus crisis in the technology sector, from NVIDIA acquiring ARM Holdings, Oracle and Walmart’s stake in TikTok, and Microsoft’s Bethesda acquisition to even the most recent rumored deal of AMD looking to acquire its rival Xilinx for $30 billion.

News of merger, acquisition and spin-off keep ticking. Coronavirus crisis has compelled companies globally to rethink business strategies and alter their spending patterns. International Business Machines Corporation IBM isn’t immune to the trend.

The company recently announced the spin-off of its legacy Managed Infrastructure Services business in a bid to accelerate its hybrid cloud growth strategy, with a focus on enabling clients with accelerated digital transformation.

The company’s Managed Infrastructure Services, a unit of its Global Technology Services division, will be spun off into a new public company or NewCo (set to be named later). The deal is anticipated to “be achieved as a tax-free spin-off to IBM shareholders,” with closure set at the end of 2021.

IBM’s chief executive officer Arvind Krishna’s words explain the big bet and his vision in a nutshell. He said, “IBM is laser-focused on the $1 trillion hybrid cloud opportunity.”

The aim is to fortify its presence in two different territories by creating two entities to realize business goals and best outcomes. IBM’s open hybrid cloud platform and AI expertise are poised to get a boost with the new deal. Meanwhile, NewCo is set to gain new capabilities and greater agility to “design, run and modernize the infrastructure of the world’s most important organizations.”

Upbeat Preliminary Q3 Results

IBM expects to report revenues of $17.6 billion and non-GAAP earnings of $2.58 per share.

Meanwhile, the Zacks Consensus Estimate for third-quarter revenues and earnings is currently pegged at $17.51 billion and $2.55 per share. Notably, the Zacks

IBM will spinoff legacy business to focus on cloud and AI services

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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.



a close up of a door


© Photo by Jeremy Moeller/Getty Images


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.

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The split is just the latest divestment of unfavorable businesses in IBM’s long history

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. “We divested networking back in the ‘90s, we divested PCs back in the 2000s, we divested semiconductors about five years ago because all of them didn’t necessarily play into the integrated value proposition,” said Krishna, according to a report from Reuters.

The new company — which has the placeholder name “NewCo” in official documents — will have roughly 90,000 employees and $19 billion in revenue. (IBM as it current stands has roughly 352,000 workers.) When the spin-off is completed, which IBM says will take place before the end of 2021, NewCo will automatically become the world’s “leading managed infrastructure services provider,” with a client list of some 4,600 customers that covers more than 75 percent of the Fortune 100.



diagram: IBM will be split into IBM and NewCo by the end of 2021.


© Image: IBM
IBM will be split into IBM and NewCo by the end of 2021.

The new IBM will be mostly focused on its hybrid cloud platform, which the firm says represents a $1 trillion market

IBM’s Spinoff and Restructuring Plans Look Like Steps in the Right Direction

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As a long-time critic of the company, I’ll be the first to say that IBM (IBM) still faces its share of competitive and secular pressures. But the planned spinoff of Big Blue’s managed IT infrastructure services business is encouraging news.

First, the managed infrastructure business — though said by IBM to have a $60 billion-plus backlog and more than twice the scale of its nearest rival — is clearly struggling. IBM’s “infrastructure & cloud services” revenue, which is reported within its Global Technology Services (GTS) segment, was down 7% annually in Q2, 6% in Q1 and 5% in Q4. And this is in spite of the fact that this revenue also covers the IBM Cloud public cloud services unit, which appears to be growing.

Secular headwinds — specifically, the adoption of cloud infrastructure platforms much larger than IBM’s, such as AWS and Microsoft Azure — are clearly a factor here. But growth comparisons suggest GTS has also been losing share to rivals such as Accenture (ACN) and Wipro (WIT) . A spinoff that leaves IBM’s managed infrastructure business in the hands of a management team that’s focused solely on running that business just might help turn things around.

Meanwhile, shedding the managed infrastructure business allows new CEO Arvind Krishna and other IBM execs to direct more of their attention towards value-added software, hardware and services offerings. And from the looks of things, that’s what they generally want to do.


Quite a few IBM businesses are seeing revenue declines right now. Source: IBM.

To be sure, the IBM press release announcing the spinoff still contains a lot of the usual Big Blue marketing-speak. Though IBM might now claim to be focused on “its open hybrid cloud platform and AI capabilities,” many of the businesses that aren’t being spun off have nothing

IBM Surges As Infrastructure Spin-Off Highlights Cloud Focus

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International Business Machines Corp.  (IBM) – Get Report shares jumped higher Thursday after the cloud-focused computer group said it would spin off its infrastructure division.

IBM said it will sell its ‘managed infrastructure services unit’, a legacy division that sits within the group’s global technology services group. The move will help concentrate IBM’s focus on hybrid cloud growth, the company said, which have been driving group earnings under new CEO Arvind Krishna.

IBM said the separation, a tax-free spin-off to IBM shareholders, will likely be completed by the end of next year.

“IBM is laser-focused on the $1 trillion hybrid cloud opportunity. Client buying needs for application and infrastructure services are diverging, while adoption of our hybrid cloud platform is accelerating,” Krishna said. “Now is the right time to create two market-leading companies focused on what they do best. IBM will focus on its open hybrid cloud platform and AI capabilities. NewCo will have greater agility to design, run and modernize the infrastructure of the world’s most important organizations.”

“Both companies will be on an improved growth trajectory with greater ability to partner and capture new opportunities – creating value for clients and shareholders,” he added.

IBM shares were marked 7.5% higher in early trading following news of the division sale to change hands at $133.62 each, the highest since early June.

IBM’s second quarter cloud revenues rose 30% to $6.3 billion. as well as solid sales from its cloud and cognitive software division, following a re-focus of business operations and reporting strucures announced last year.

Free cash flow generation also impressed, growing 15% year-on-year and snapping several quarters of decline under the previous executive team, while margins and cash collections improved.