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Finally. On October 9th, IBM announced that it will split itself up by breaking up the company into two pieces, spinning off its legacy IT services businesses to focus on cloud. IBM shares rose about 6% on the news the first day, thought they have pulled back to be close to where they were when the deal was announced.
The change is sorely needed — IBM CEO Arvind Krishna is wise to pursue the strategy as the company needs some sort of catalyst to drive growth in the era of the cloud explosion. This deal should put IBM in a better position to compete with other cloud titans such as Amazon Web Services (AWS), Google, and Microsoft Azure by putting more focus on its prized Red Hat unit. It should also enable IBM to compete more strongly against other large tech conglomerates pursuing cloud, such as Hewlett Packard Enterprise (HPE)
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International Business Machines (NYSE:IBM) announced an intriguing spinoff this week to accelerate its cloud and artificial intelligence (AI) growth strategy. Whether the spinoff will generate operational benefits remains to be seen, but Big Blue shareholders should still profit from this decision.
What will IBM spin off and why
Over the last several years, the tech giant has been shifting its business to the cloud to offset the decline of its legacy activities. It accelerated that transformation with the acquisition of cloud specialist Red Hat for $34 billion in 2019. As a result, trailing-12-month (TTM) cloud revenue of $23 billion represented 30% of total revenue at the end of last quarter, up from 2% in 2012.
Yet because of divestitures and struggling legacy businesses, revenue dropped from $105 billion in 2012 to $76 billion over the last 12 months.
So management went a step further with its strategy: It announced last
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As a long-time critic of the company, I’ll be the first to say that IBM (IBM) still faces its share of competitive and secular pressures. But the planned spinoff of Big Blue’s managed IT infrastructure services business is encouraging news.
First, the managed infrastructure business — though said by IBM to have a $60 billion-plus backlog and more than twice the scale of its nearest rival — is clearly struggling. IBM’s “infrastructure & cloud services” revenue, which is reported within its Global Technology Services (GTS) segment, was down 7% annually in Q2, 6% in Q1 and 5% in Q4. And this is in spite of the fact that this revenue also covers the IBM Cloud public cloud services unit, which appears to be growing.
Secular headwinds — specifically, the adoption of cloud infrastructure platforms much larger than IBM’s, such as AWS and Microsoft Azure — are clearly a factor here.
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(RTTNews) – IBM (IBM) announced the company will separate its Managed Infrastructure Services unit of its Global Technology Services division into a new public company. Going forward, IBM will focus on its open hybrid cloud platform. The new company will be entirely focused on managing and modernizing client-owned infrastructures. The separation is anticipated to be achieved as a tax-free spin-off to shareholders, and completed by the end of 2021.
IBM said it will move from a company with more than half of its revenues in services to one with a majority in high-value cloud software and solutions. The company will have more than 50% of its portfolio in recurring revenues.
IBM is also taking action to simplify and optimize its operating model which includes streamlining its geographic model and transforming its go-to-market structure. The company is also continuing to consolidate its shared services.
Following the deal, the companies together are