IBM to split in two to focus on AI and cloud business

9 Oct 2020720 Views

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IBM has announced plans to spin out its IT infrastructure business next year in a bid to focus more on sectors such as AI and cloud.

IBM is set to undergo major structural change as it looks to refocus its business in the years ahead. The 109-year-old tech giant said that it plans to “accelerate its hybrid cloud growth strategy” by spinning off its IT infrastructure side of the business.

With the creation of a spin-out business provisionally called ‘NewCo’, IBM said the separation is expected to be completed by the end of 2021.

Commenting on the move, IBM CEO Arvind Krishna said the company is now “laser-focused on the $1trn hybrid cloud opportunity”.

“Now is the right time to create two market-leading companies focused on what they do best,” he said.

“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.”

The company pointed to its $34bn acquisition of the cloud company Red Hat in 2018 as the key driver of its growing cloud business.

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At the time, then IBM CEO Ginni Rometty – now executive chair of the company – said the acquisition was a “game-changer” and would lead to the company becoming “the world’s number-one hybrid cloud provider”. IBM said its open hybrid cloud platform architecture, based on Red Hat’s OpenShift, works with its entire range of clients’ existing IT infrastructures.

‘Rooted in the reality of the world’

Offering guidance for shareholders in Q3, the company also said that it now expects revenues of $17.6bn and operating earnings per share of $2.58.

In a blog post, Krishna added that the planned split is “rooted in the reality of the world we live in”.

“Today, hybrid cloud and AI are swiftly becoming the locus of commerce, transactions and, over time, of computing itself,” he wrote. “This shift is driven by the changing needs of our clients, who find that choosing an open hybrid cloud approach is 2.5 times more valuable than relying on public cloud alone.”

Krishna said that services currently account for 60pc of IBM’s business and when NewCo becomes an independent company, software and solutions will account for the majority of revenue.

“This represents a significant shift in our business model. The success we’ve had with Red Hat gives us confidence that this is the right move.”

Colm Gorey is a senior journalist with Siliconrepublic.com

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