IBM is spinning off a significant part of its business to focus on new opportunities in hybrid cloud growth, the company announced on Thursday.
The IT services unit of IBM’s Global Technology Services business will become a separate public company. It represents a major departure from IBM’s previous priorities and one of the boldest moves in the company’s more-than-a-century-long history.
IBM’s managed infrastructure services business represented nearly a quarter of IBM’s revenue last year. But IBM believes its future lies in the hybrid cloud — a technical setup wherein companies may use multiple clouds in addition to their own on-premises servers. IBM’s platform gives companies tools to more easily navigate between those various environments.
New CEO Arvind Krishna made the hybrid cloud the focus when he took the reins from former CEO Ginni Rometty earlier this year. IBM has made large investments in cloud computing over the past several years. In 2019, IBM acquired RedHat for $34 billion. The company says the spinoff will grant IBM the opportunity to be “laser-focused on the $1 trillion hybrid cloud opportunity.”
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.”
IBM’s dedicated investment in hybrid cloud could help position the 109-year-old company against others in the space such as Amazon and Microsoft.
The company also reported preliminary third quarter earnings results Thursday. IBM says it expects to report revenue of $17.6 billion and adjusted earnings per share of $2.58. The computing firm is set to report earnings, later this month, on October 21.
The spinoff, tenatively named NewCo, is expected to be tax-free and completed by the end of 2021.