IBM, one of the world's oldest information technology companies, is to be broken up into two separate public firms.
The infrastructure services unit, which provides services related to data centres, servers networking and other IT hardware and currently brings in $19 billion in annual revenues will be split off into a new company with a new name, leaving the rump of IBM to focus on the more lucrative area of cloud services. The separation should be completed by the end of 2021, the company says. It expects to incur nearly $2.5 billion in expenses related to the move.
IBM's hybrid cloud platform, in part the fruits of the recent $34 billion Red Hat acquisition, "represents a $1 trillion market opportunity", the company says in a statement, adding that this will facilitate the deployment of more AI capabilities and application modernization services for its customers.
Founded in 1911, IBM was for many years synonymous with s mainframe computers and servers and later peripherals, PCs and laptops. However, it has been moving steadily to divest itself of its hardware roots, selling off its printer division to Lexmark and its servers and PCs to Lenovo so it could focus more on services and, latterly, cloud.
"We divested networking back in the ‘90s, we divested PCs back in the 2000s, we divested semiconductors about five years ago because all of them didn't necessarily play into the integrated value proposition," said CEO Arvind Krishna on an analyst call, as reported by Reuters.
The spun-off company will have around 90,000 employees and 4,600 enterprise clients in 115 countries and will be twice the size of its nearest competitor, IBM says in a statement. Which would leave 260,000 IBM employees to focus on cloud.
"With a streamlined business model, ‘NewCo' will create value by helping enterprises optimise their performance through AI and automation. 'NewCo's' services will enable enterprises to build agility and efficiency into their infrastructure and data centres."
Executive chairman Ginni Rometty said: "As two independent companies, IBM and NewCo will capitalise on their respective strengths. IBM will accelerate clients' digital transformation journeys, and NewCo will accelerate clients' infrastructure modernisation efforts. This focus will result in greater value, increased innovation, and faster execution for our clients."
The stock market reacted positively to the news with IBM shares up around 10 per cent following the announcement.
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