IBM to spin off IT infrastructure unit to focus on cloud

IBM to spin off IT infrastructure unit to focus on cloud
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12 Oct, 2020

As companies across the world move to the cloud amid the new normal, New York headquartered technology giant IBM has decided to split into two public companies in an effort to focus on its cloud computing and artificial intelligence (AI) solutions. 

Last week, the  109-year old company announced that it will spin-off its managed infrastructure services unit from the global technology services division to a new publicly listed company, NewCo. 

According to Arvind Krishna, CEO at IBM, this move will accelerate the Big Blue’s growth in the cloud market. Krishna played a pivotal role in IBM’s acquisition of open source software provider Red Hat for a record $34 billion. The acquisition has become a contributor to the company’s current cloud portfolio. 

“Client buying needs for application and infrastructure services are diverging, while adoption of our hybrid cloud platform is accelerating. Now is the right time to create two market-leading companies focused on what they do best,” Krishna said in the statement.

“IBM will focus on its open hybrid cloud platform and AI capabilities. NewCo will have greater agility to design, run and modernize the infrastructure of the world's most important organizations,” he added. 

Read: Meet Arvind Krishna, IBM’s first ‘geek’ CEO as Big Blue drives into the cloud era

The split is expected to be achieved as a tax-free spin-off to IBM shareholders and will be completed by end of 2021, said a statement issued by the company.

The New York Stock Exchange listed company also announced its preliminary Q3 results for the quarter ending September 30, 2020 with reported revenue of $17.6 billion. With the announcement of the spin-off, IBM’s shares closed 6% higher. 

The new company, to be named at a subsequent date, is expected to be the world's largest managed infrastructure service provider, with a backlog of $60 billion, according to the statement. It will also inherit a client base of 4600 companies across 115 geographies. The company will help enterprises optimize their performance through AI and automation and help them build agility into their infrastructure and data centres. 

The companies together are expected to pay a combined quarterly dividend not less that IBM’s pre-spin dividend per share initially, the company clarified to its shareholders in the statement. Following the separation, each company’s dividend policy will be decided by the respective board of directors.