IBM has said it will move its managed infrastructure services unit to a new listed company, so it can focus on its hybrid cloud business, which includes Red Hat, which was recently acquired for $ 34 billion. The new company will therefore focus on managing data centers and cloud computing infrastructure for customers.
IBM also reported higher than expected revenue for its third quarter of $ 17.6 billion. Wall Street expected sales of $ 17.54 billion.
There will still be a lot of details to work out, as the split won’t close until the end of 2021. But, roughly speaking, IBM’s plan looks like this:
- The new company will design, operate and modernize infrastructure for customers.
- IBM will focus on its Red Hat-led cloud computing platform, as well as growing markets like artificial intelligence and hybrid cloud.
- Big Blue said it is streamlining its operating model and simplifying unmanaged infrastructure services.
- When the managed infrastructure business is established, IBM will shift from a business where half of its revenue is from service revenue to one where more than 50% of sales will come from recurring revenue.
IBM CEO Arvind Krishna explains that “customer needs for the procurement of application services and infrastructure diverge as the adoption of our hybrid cloud platform accelerates.” During a conference call, he said this initiative is redefining IBM. “I’m focused on prioritizing growth, and winning the architectural battle in the cloud with Red Hat. Our actions will accelerate our growth strategy in the hybrid cloud. “
Arvind Krishna adds that the foundations are in place for IBM’s growth: customers buy technology on different cycles and with different managers compared to the managed infrastructure. “We are creating two companies that focus on what they do best,” he explains. “We will create value by focusing on what they do best. “
IBM will have around $ 59 billion in revenue after the spin-off, with the new company having $ 19 billion in revenue. Ultimately, IBM is moving away from the managed infrastructure business and becoming a platform business, with the economics to go with it.
Details of the new company
This spin-off company, which has not yet been named, will have more than 4,600 regulated customers in 115 countries. The new company also has 90,000 employees. IBM says the managed infrastructure unit will have more than 75% of Fortune 100 customers and a $ 60 billion backlog.
According to IBM, the managed infrastructure unit will be able to move faster to modernize the infrastructure as well as partner with all cloud providers. The new company will also be an IBM partner. Once the spin-off is created, the two combined companies are expected to pay a shareholder dividend that is no lower than what IBM shareholders currently receive.
Here’s what IBM and the new company will look like after the spin-off: