IBM splits into two companies to focus on high-margin cloud computing

International Business Machines Corporation is reportedly breaking itself into two public companies intending to diversify away from its legacy businesses to further concentrate on high-margin cloud computing.

According to Arvind Krishna, the Chief Executive Officer of IBM, the company divested networking in the 1990s, PCs in the 2000s, and semiconductors almost five years ago, as most of them did not essentially play into the combined value proposition. The CEO called the decision a significant shift in the 109-year-old organization’s business model, cite reports.

Sources state that, in the recent years, IBM has shifted focal point to cloud growth to offset the seasonal demand for mainframe servers and the decelerating software sales. IBM’s software and solutions portfolio would account for major part of its revenue following the separation, added Krishna.

According to a statement by IBM, the company expects to incur approximately $2.5 billion in expenses pertaining to the unit spin-off, with an adjusted profit per share of $2.58 and third-quarter revenue amounting to almost $17.6 billion.

Moshe Katri, Analyst at Wedbush Securities, has stated that IBM is fundamentally getting rid of a low-margin and shrinking operation given the cannibalizing effect of cloud and automation, masking robust growth for the rest of the operation.

The company will also list its IT infrastructure services unit, delivering services that comprise technical support for data centers, as an independent company having a new name before the end of 2021, state sources. Shares of the organization were up 7 per cent in forward trading on the move by CEO Arvind Krishna, who also devised the company’s $34 billion worth acquisition of the cloud company Red Hat the previous year.

International Business Machines Corporation is multinational tech major founded in 1911. Initially called the Computing-Tabulating-Recording Company, it was renamed as “International Business Machines” in 1924. The company has its headquarters in Armonk, New York, in the United States. IBM subsidiaries comprise Wealth Underground, Aspera, Red Hat Software, and others.

 

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https://www.business-standard.com/article/companies/ibm-to-break-up-109-year-old-firm-to-focus-on-high-margin-cloud-computing-120100801147_1.html#:~:text=%C2%ABBack-,IBM%20to%20break%20up%20109%2Dyear%20old%20firm%20to,on%20high%2Dmargin%20cloud%20computing&text=International%20Business%20Machines%20Corp%20is,on%20high%2Dmargin%20cloud%20computing