International Business Machines (IBM), a company that took pride in developing industry leading computer hardware is straying further away from its roots by separating its Infrastructure service unit from its Global Technology Services division, spinning it off as a new company.
The yet to be named company (NewCo) is valued at $19 billion and will be separated as a tax-free spin-off to IBM shareholders by late 2021. Coming out of its main unit, the NewCo will be already become the leading business in the Managed Infrastructure service market, with BMC and Microsoft as its closest competitor.
IBM claims that NewCo already has 4,600 technology-intensive clients across 115 countries, which include more than 75% of the Fortune 100. The separation will give the new company a backlog of $60 billion in business, 90,000 employees and the position of being more than twice the scale of its nearest competitor.
NewCo’s aim is to offer hosting and network services, services management, infrastructure modernization, and migrating and managing multi-cloud environments to clients who look to optimize their performance and operations. Given the current situation, a huge number of companies are looking to take their businesses online. This is where IBM’s NewCo will enter, providing these companies with the required infrastructure to turn the businesses digital.
Arvind Krishna, IBM Chief Executive Officer, said, “IBM is laser-focused on the $1 trillion hybrid cloud opportunity. Client buying needs for application and infrastructure services are diverging, while adoption of our hybrid cloud platform is accelerating. Now is the right time to create two market-leading companies focused on what they do best. IBM will focus on its open hybrid cloud platform and AI capabilities. NewCo will have greater agility to design, run and modernize the infrastructure of the world’s most important organizations. Both companies will be on an improved growth trajectory with greater ability to partner and capture new opportunities – creating value for clients and shareholders.”
The acquisition of Red Hat has paid dividends for IBM in providing the full value of cloud to its clients. Red Hat is a platform that enables the power of data, application modernization services, and systems by using powerful AI capabilities. IBM claims its hybrid cloud and AI platform is unmatched in the industry, and sees a lot of potential in the market, so much so that it’s changing its entire business.
IBM also announced its preliminary financial results for the quarter that ended on September 30, 2020. The company is expecting a revenue of $17.6 billion, with GAAP diluted earnings per share from continuing operations of $1.89 and operating earnings per share of $2.58. These are just approximate figures until IBM announces the actual results later this month.