IBM announced this morning that the company would spin off some of its lower-margin business lines into a new company and focus on higher-margin cloud services. During an investor call, CEO Arvind Krishna acknowledged the move was a “significant change” in the way IBM will operate, but positioned it as the latest in a decades-long series of strategic divestments.
“We dove into networking in the ’90s, we dove into PCs in the 2000s, we dove into semiconductors about five years ago because they didn’t all necessarily fit into the integrated value proposition,” he said. Krishna became CEO in April 2020, replacing former CEO Ginni Rometty (who is now IBM’s executive chairman), but the spinoff is the cornerstone of a multi-year effort to apply some kind of business model approach in company expansion.
Cloudy with a chance of reaching quarterly guidance
The new spin-off does not yet have a formal name and is referred to as “NewCo” at IBM’s marketing material and investor relations. Under the spin-off plan, the Press release it states that IBM will “focus on its open hybrid cloud platform, which represents a $1 trillion market opportunity,” while NewCo “will immediately be the world’s leading managed infrastructure services provider.” (This is because NewCo will start life owning all of IBM Global Technology Services’ existing managed infrastructure clients, which means approximately 4,600 accounts, including approximately 75 percent of the Fortune 100.)
the Reuters newsroom of the division quotes Wedbush Securities analyst Moshe Katri, who categorizes the managed infrastructure business as something smart for IBM to ditch: “IBM is essentially shedding a shrinking, low-margin operation given the cannibalizing impact automation and cloud, masking stronger growth for the rest of the operation.
Investors are reacting bullishly to news of the 109-year-old company’s plans. IBM shares were up about 7 percent for the day at press time.