Media Moves

IBM will spin off services business and focus on cloud

October 9, 2020

Posted by Irina Slav

IBM will spin off its IT infrastructure management business, which accounts for a quarter of its sales, to focus on cloud computing.

Asa Fitch and Dave Sebastian reported the news for the Wall Street Journal:

International Business Machines Corp. is planning its biggest-ever business exit, spinning off a major part of its information-technology services operations to accelerate the 109-year-old tech pioneer’s focus on faster-growing businesses like cloud-computing and artificial intelligence.

The move IBM announced Thursday would separate its unit that manages clients’ IT infrastructure and accounts for nearly a quarter of its sales and staff. But the business has shrunk as customers have embraced cloud computing and has become an earnings drag for Big Blue.

CNN’s Jazmin Goodwin wrote:

Investors liked the news, sending shares of IBM up 5% Thursday.

“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,” said IBM CEO, Arvind Krishna. “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.”

TechCrunch’s Ron Miller noted:

The move was a continuation of the strategy the company began to put in place when it bought Red Hat  in 2018 for the princely sum of $34 billion. That purchase signaled a shift to a hybrid-cloud vision, where some of your infrastructure lives on-premises and some in the cloud — with Red Hat helping to manage it all.

Even as IBM moved deeper into the hybrid cloud strategy, Krishna saw the financial results like everyone else and recognized the need to focus more keenly on that approach. In its most recent earnings report overall IBM revenue was $18.1 billion, down 5.4% compared to the year-ago period. But if you broke out just IBM’s cloud and Red Hat revenue, you saw some more promising results: cloud revenue was up 30 percent to $6.3 billion, while Red Hat-derived revenue was up 17%.

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