IBM to break up 109-year old company to focus on cloud growth

IBM

IBM is splitting itself into two public companies, capping a years-long campaign by the world’s very first huge computing firm to diversify away from its heritage businesses to focus on high-margin cloud computing.

IBM will record its IT infrastructure services unit, which provides technical support for 4,600 clients in 115 countries and also has a backlog of $60 billion, as a separate company with a new name at the end of 2021.

The new firm will have 90,000 workers and its leadership structure will be determined in a few months, CFO James Kavanaugh told Reuters.

IBM, which now has over 352,000 employees, said it hopes to record almost $5 billion in costs associated with the separation and operational changes.

Investors cheered the surprise move from CEO Arvind Krishna, the key architect behind IBM’s $34 billion acquisition of cloud firm Red Hat last year, sending the organization’s shares up 7%.

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In a blog post, Krishna called the move a “significant shift” from the 109-year-old firm’s business model.

“IBM is essentially getting rid of a shrinking, low-margin operation given the cannibalizing impact of automation and cloud, masking stronger growth for the rest of the operation,” Wedbush Securities analyst Moshe Katri said.

IBM, which has sought to compensate for slowing software sales and seasonal requirement for its mainframe servers, said it would now focus on open hybrid cloud and AI solutions which will account for over fifty percent of its recurring revenues.

Krishna, who replaced Ginni Rometty as Chief Executive Officer in April, said IBM’s applications and solutions portfolio would account for the majority of company revenue after the separation.

The company also said it anticipates third-quarter earnings of $17.6 billion and an adjusted gain per share of $2.58, approximately in line with Street estimates.

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The team at Platform Executive hope you have enjoyed this news article. Initial reporting via our official content partners at Thomson Reuters. Reporting by Munsif Vengattil in Bengaluru. Editing by Ramakrishnan M.

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