IBM to spin off infrastructure services arm into new public firm

Big Blue’s infrastructure services business will become public company

IBM has announced plans to spin out its Managed Infrastructure Services unit into a new public company as it accelerates its shift to hybrid cloud.

The seperation is expected to close at the end of 2021, and will be achieved through a tax-free spin-off of the business unit into a seperate public company.

The unit, which falls into IBM's $27.36bn Global Technology Services division, will become the world's largest managed infrastructure services provider working with 4,600 clients across 115 countries and with a backlog of $60bn.

IBM claims the business will be named at a later date but is currently being referred to as NewCo. It will entirely focus on managing and modernising client-owned infrastructures.

Splitting from IBM will mean the new company can expand its margins, grow profits and generate new cash, IBM claims.

Bug Blue's share price surged by almost nine per cent off the back of the news.

The business will also be able to partner across all cloud vendors, and therefore open up new growth opportunities while maintaining its strong ties with IBM.

The spin-off will mean that IBM will move from being a business that generates more than half of its revenue from services, to one which has the majority of its business in cloud software and solutions.

IBM says that more than 50 per cent of its portfolio will be recurring once the spin-off closes.

The tech giant also claims that it will change its operating model following the spin-off, including streamlining its geographic model and go-to-market structure.

IBM's CEO, Arvind Krishna, said the spin-off will accelerate its hybrid cloud strategy while also allowing its infrastructure services business to pursue new opportunities.

"IBM is laser-focused on the $1 trillion hybrid cloud opportunity," said Krishna.

"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 modernise 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."

IBM's Global Technology Services revenues declined by 3.7 per cent in its last financial year ending 31 December 2019 to $27.36m.

In its last quarter, revenues similarly declined by five per cent to $6.3bn, driven by a five per cent decline in infrastructure and cloud services.

The tech giant has been relentlessly shifting its business towards hybrid cloud in recent years and has sold off several strands of its hardware business stretching back to the 1990s. It divested its PC business and then its datacentre business to Lenovo in 2005 and 2014 respectively. In 1998 it sold its Global Network business to AT&T.