IBM to Spin Off Managed Infrastructure Services Unit--Update
October 08 2020 - 9:31AM
Dow Jones News
By Dave Sebastian
International Business Machines Corp. plans to spin off its
business of managing clients' information-technology
infrastructure, as the 109-year-old tech pioneer sharpens its focus
on the faster-growing cloud-computing business and artificial
intelligence.
IBM said Thursday the soon-to-be-named company already has
relationships with 4,600 clients in 115 countries and operates in
what it sees as a $500 billion market opportunity.
The spinoff announcement comes a few months after the Armonk,
N.Y., company said it was cutting an unspecified number of jobs in
the first major workforce reduction under Chief Executive Arvind
Krishna. He assumed the role in April and is trying to revive
growth at the tech company. The layoffs were made against the
backdrop of the Covid-19 pandemic, which has caused many IBM
customers to dial back investments and hold off on big software
deals.
Even before the health crisis, IBM has been struggling through a
yearslong effort to reposition the company. Sales have fallen
around 25% in the past eight years and the company trails the likes
of Amazon.com Inc. and Microsoft Corp. in cloud computing -- where
companies rent rather than buy computing horsepower.
The separation would hive off a chunk of its global technology
systems unit, which has been hurt by lower client volumes in recent
years. Last year the unit was responsible for $27.36 billion in
revenue, though that fell 6.1% from a year earlier.
The new company would be able to partner across all cloud
vendors, providing the opportunity for stronger profits and cash
generation, IBM said. The separation is expected to be tax-free to
shareholders and completed by the end of 2021.
Shares of IBM, which closed Wednesday at $124.07, rose more than
10% in premarket trading Thursday.
IBM has been trying to capitalize on what it calls the hybrid
cloud, which companies use to manage software and other systems
across different cloud services and their own data centers. The
company in 2019 bought open-source software company Red Hat Inc.
for $34 billion in a bid to boost its standing in that market. IBM
saw the deal, which was the most expensive in its history, as an
opportunity to gain on competitors in cloud computing.
The company Thursday also reported third-quarter profit and
revenue that were roughly in line with Wall Street's expectations.
For the September-ended quarter, IBM posted preliminary earnings
from continuing operations of $1.89 a share, or $2.58 a share on an
adjusted basis, on revenue of $17.6 billion. The company said it
would release its full quarterly report later this month.
Write to Dave Sebastian at dave.sebastian@wsj.com
(END) Dow Jones Newswires
October 08, 2020 09:16 ET (13:16 GMT)
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