IBM to split into IT business and cloud computing company
Shares in the 109-year-old computing firm went up 7% as it announced it will spin off its low margin IT infrastructure unit
Bengaluru — IBM is splitting itself into two public companies, capping a years-long effort by the world’s first big computing firm to diversify away from its legacy businesses to focus on high-margin cloud computing.
IBM will list its IT infrastructure services unit, which provides services that include technical support for data centres, as a separate company with a new name by the end of 2021.
Shares of the company were up 7% in early trading on the move by CEO Arvind Krishna, who also engineered IBM’s $34bn acquisition of cloud company Red Hat last year.
“We divested networking back in the 1990s, 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,” Krishna said on a call with analysts.
In a blog, Krishna called the move a “significant shift” in the 109-year-old company’s business model.
“IBM is essentially getting rid of a shrinking, low-margin operation given the cannibalising impact of automation and cloud computing, masking stronger growth for the rest of the operation,” Wedbush Securities analyst Moshe Katri said.
The company has shifted focus to cloud growth in recent years, aiming to make up for slowing software sales and seasonal demand for its mainframe servers.
Krishna, who replaced Ginni Rometty as CEO in April, said IBM’s software and solutions portfolio would account for the majority of company revenue after the separation.
IBM said it expects to incur nearly $2.5bn in expenses related to the unit spin-off. The company also said it expects third-quarter revenue of $17.6bn and an adjusted profit per share of $2.58, roughly in line with Wall Street estimates.
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