IBM has announced that it will split into two companies by the end of 2021. It will concentrate on forward-facing services such as cloud computing and AI, and form a new company to manage legacy IT infrastructure.
It will be spun off, permanently named (currently “NewCo”), and listed on the stock market in 2021.
NewCo will be the world leader in its sector, already having established relationships with more than 4,600 clients in 115 countries. According to IBM, it will have an estimated $19bn in annual revenue, 90,000 employees, and will serve three quarters of Fortune 100 companies. IBM CFO James Kavanaugh told Reuters that NewCo’s leadership structure will be decided in a few months.
The separation is expected to cost IBM nearly $5bn.
Writing in a blog post, CEO Arvind 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.”
After the separation, IBM’s software and solutions portfolio will account for the majority of its revenue.
“IBM is laser-focused on the $1tn hybrid cloud opportunity. Client buying needs for our application and infrastructure services are diverging, while adoption of our hybrid cloud platform is accelerating,” said Krishna.” 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 modernise the infrastructure of the world’s most important organisations. Both companies will be on an improved growth trajectory with greater ability to partner and capture new opportunities – creating value for clients and shareholders.”
Throughout its history, IBM has always maintained focus on the most forward-facing, higher-margin pursuits. In addition to acquiring companies like Red Hat, it has jettisoned its traditional businesses, including printer, keyboard, and semiconductor manufacturing.
“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,” said Krishna during a call with analysts.
Wedbush Securities analyst Moshe Katri commented: “IBM is essentially getting rid of a shrinking, low-margin operation given the cannibalising impact of automation and cloud, masking stronger growth for the rest of the operation.”
IBM shares closed almost six per cent higher after the announcement.