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IBM spinning off legacy IT business to step up cloud competition with Amazon, Microsoft

  • A new IBM unit will handle day-to-day infrastructure service operations, like managing client data centers and operating equipment
  • The shift essentially divides IBM into two, splitting its legacy IT-management services from its new hybrid-cloud computing and artificial intelligence unit

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IBM expects revenue of US$17.6 billion in the third-quarter, in line with analysts’ estimates, and adjusted operating earnings of US$2.58 a share. Photo: AP
Bloomberg
International Business Machines Corporation (IBM) is spinning off a slower-growth business that manages corporate computer systems so it can focus on the boom in demand for cloud services and step up competition with Amazon and Microsoft.

The new unit, which is currently part of IBM’s global technology services division, handles day-to-day infrastructure service operations, like managing client data centers and traditional information-technology support for installing, repairing and operating equipment. It serves 4,600 clients and has an order backlog of US$60 billion, according to a statement from IBM Thursday.

The shift essentially divides IBM into two, splitting its legacy IT-management services from its new hybrid-cloud computing and artificial intelligence unit, which the company hopes will return it to revenue growth – and relevancy. IBM said it aims to complete the transaction as a tax-free spin-off to IBM shareholders by the end of 2021.

The move is the fourth major transformation for IBM in its 109-year history and is the first big move by chief executive officer Arvind Krishna, who took over from Ginni Rometty in April and has been pushing to revive growth after almost a decade of shrinking revenue. Krishna earlier this year cut thousands of jobs as he began reshaping the business.

Once an iconic blue-chip company, IBM’s star has faded over the years as its legacy in mainframe computing and IT services fell behind while newer technology firms like Amazon swooped in to dominate the emerging cloud-computing market.

Now IBM is plotting its rebound, aiming to become the leader in what it calls hybrid-cloud software and services that let clients store data in private servers and in public clouds, including those run by Amazon and Microsoft. In 2018, IBM spent US$34 billion to buy open source software provider Red Hat to aid that transition.

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