109 Year Old IBM Embraces Cloud Services In A Big Way; Splits Into Two For ‘Reinventing’ Themselves

In an attempt to shift its focus to higher-margin businesses like cloud computing and artificial intelligence, International Business Machines (IBM) has announced that it will split into two public companies.

Why The Split?

Basically, the American multinational technology company is planning to spin off some of its lower-margin lines of business into a new company and have a focus on higher-margin cloud services.

Although, CEO Arvind Krishna acknowledged the move as a “significant shift” in how IBM will work.

But, moving ahead he positioned it as the latest in a decades-long series of strategic divestments.

Moving ahead, the new company focusing on legacy IT infrastructure will be named and spun off next year.

After the announcement, IBM shares surged more than 7% in the trading session.

“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 Arvind Krishna, IBM CEO.

Mr. Krishna said, “To drive growth, our strategy must be rooted in the reality of the world we live in and the future our clients strive to build. Today, hybrid cloud and AI are swiftly becoming the locus of commerce, transactions, and over time, of computing itself,” in a blog post.

With more than 352,000 workers, IBM expects the separation would cost $5bn.

Plans For New Company – NewCo

So far, the new spin-off doesn’t have a formal name, so it is referred to as “NewCo” in IBM’s marketing and investor relations material.

According to the press release, IBM “will focus on its open hybrid cloud platform, which represents a $1 trillion market opportunity,”.

On the other hand, NewCo “will immediately be the world’s leading managed infrastructure services provider.” 

Since, from the start, NewCo will own the entirety of IBM Global Technology Services’ existing managed infrastructure clients, which means about 4,600 accounts, including about 75 percent of the Fortune 100.

The NewCo will have $19bn in annual revenue and expected to serve 75% of Fortune 100 companies after making its debut in the share market.

Further, it will have 90,000 employees and will receive a permanent name next year, along with a share market listing, according to Mr. Arvind.

Image source – arstechnica.com