International Business Machines (IBM) has announced it will split into two public companies, the move is an attempt to shift its focus to higher-margin businesses like cloud computing and artificial intelligence, a new company focusing on legacy IT infrastructure will be named and spun off next year. IBM shares closed nearly 6% higher after the announcement.
It marks the latest shift by the world’s first big computing firm to diversify away from its traditional businesses. 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, Chief Executive Arvind Krishna said. Mr Krishna was the key architect behind IBM’s $34bn (£26bn) acquisition of cloud company Red Hat last year.
Currently, Amazon Web Services and Microsoft dominate the market for cloud services, 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, Mr Krishna wrote in a blog post. IBM, which currently has more than 352,000 workers, said it expects the separation to cost $5bn.
IBM’s legacy businesses will be spun off into a new company called “NewCo”. This will encompass its “Managed Infrastructure Services” division, analysts said the move is an attempt to focus on more profitable business models. 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. Mr Arvind said NewCo will have $19bn in annual revenue and will serve 75% of Fortune 100 companies when it makes its share market debut.
NewCo will have 90,000 employees and will receive a permanent name next year, along with a share market listing.