International Business Machines Corp (IBM) is dividing itself into two public companies, to concentrate more on high-margin cloud computing by concluding years-long hard work to diversify its business and take on rivals like Amazon.com and Microsoft Corp.
The new company, which is at present a part of IBM’s global technology services section, will soon list its IT infrastructure services unit that delivers technical support for 4,600 clients in 115 countries and has an order backlog of $60 billion. By the end of next year, it will be named as a separate entity.
With this decision the company will split its legacy IT management services from its new cloud computing and AI wing, IBM expects with this move it will be able to get back into its revenue trajectory. The leadership structure of the new unit is hoped to be finalized within a few months, says Chief Financial Officer James Kavanaugh.
The investors of the company have welcomed this surprise move by Chief Executive Officer Arvind Krishna, the brain behind IBM’s $34 billion purchase of cloud company Red Hat in 2018, taking the company’s shares up 7 percent.
This move marks the fourth major alteration of the company in its 109 years history. In the 1990s IBM divested networking back, in the 2000s it disposed PCs and five years ago it transformed its semiconductors.
The dominance of the blue-chip company fell in past years as its computing and IT technology was left behind when cutting-edge technology firms like Amazon gained control of the cloud computing market.
In a blog, the current CEO Aravind Krishna who took over from Ginni Rometty in April highlighted this step as a “significant shift” in the 109-year-old company’s history.
“Today is a landmark day for our company, we are redefining the future of IBM. The new strategy will unlock growth on both sides of IBM’s business,” the CEO said.
“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,” says Moshe Katri, Wedbush Securities Analyst.
IBM, which has strived to push its decreasing software sales and seasonal demand for its mainframe servers, now announced that it would focus on open hybrid cloud and AI solutions.
Mr. Krishna said that after splitting, the company’s software and solutions portfolio would account for the majority of company revenue. He further added analysts should expect the company to remain acquisitive as it is looking for growth.
The company expects a third-quarter revenue of about $17.6 billion and an adjusted profit per share of $2.58 this year, roughly in line with expert predictions.