IBM plans to spin off its legacy infrastructure unit

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IBM announced that it plans to spin off its $19 billion managed infrastructure services unit into a separate company by the end of next year. Arvind Krishna, the CEO, said that the spin-off would free up IBM so the parent company can focus on higher margins and higher growth in the hybrid cloud market.

The company’s focus needs this narrowed vision, as Krishna believes that IBM will be on a better revenue growth trajectory as it chases the $1 trillion hybrid-cloud goal.

“IBM has always transformed to fit the times and help clients move from one technological phase to the next,” he wrote in a blog post.

Continuing history

Arvind believes that the ultimate IBM goal is the through-line that connects all the significant moments that mark its history. Punch cards, vacuum tubes, transistors, mainframes, PCs, AI, and now the hybrid cloud are all major landmark products that have made IBM into the behemoth it is.

The unit IBM is planning to spin-off, has roughly 90,000 employees, supporting more than 4,500 large enterprise customers globally. The client base is more than three-quarters of the Fortune 500.

The unit has services like managing and building modern infrastructure in customers datacenters, hosting, and network management, and cloud migration assistance, among other offerings.

Taking to the cloud

Once separated, the unit will be a standalone entity under a new name that hasn’t yet been announced. IBM is simply calling it NewCo for now. The company will be a tax-free spin-off for IBM shareholders, and after completion, the shareholders will get separate dividends from the two companies.

The spin-off will change the company’s revenue base because currently, the services department pulls in more than 60% of the total sales. The shift, as IBM sees it, will lead to more revenues from cloud software and solutions. IBM’s future is hybrid cloud. In the end, that is why IBM bought Red Hat.

The question remains if the NewCo business will have the same future as the IBM pc and server business, which were separated from IBM to be acquired by Lenovo. It is definitely possible that the new 19 billion-dollar company will be acquired in the end.