IBM Says It Will Split Into Two Companies in Order to Focus on High-Margin Businesses
The company’s shares went up 7 percent after the announcement. Experts praised the firm’s decision, touting it as IBM’s smartest, and something that will help the company withstand the impact of automation and cloud services.
IBM, the world’s first big computing firm, says it will split into two public companies in order to focus on high-margin businesses such as cloud computing and artificial intelligence. The move is part of IBM’s desire to rebrand itself and diversify away from its traditional businesses.
“We divested networking back in the 1990s, 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. To drive growth, our strategy must be rooted in the reality of the world we live in and the future our clients strive to build. Today, hybrid cloud and AI are swiftly becoming the locus of commerce, transactions, and over time, of computing itself”, IBM CEO Arvind Krishna wrote in a blog post.
Arvind Krishna was instrumental in IBM’s acquisition of cloud company Red Hat last year.
As part of its renovation IBM plans to “simplify and optimise its operating model for speed and growth”, yet there has been no explanation so far if this will prompt layoffs. Currently, the company has 352,000 employees. It expects that the process of separation will cost almost $5 billion.
IBM’s IT infrastructure services unit will become a separate company. The unit, which currently provides technical support for clients in 115 countries, will be spun off and receive a name by the end of 2021. The new company will have 90,000 employees and its leadership will be assigned in November.
The company’s decision was welcomed by experts and its shares jumped 7 percent.
“This is the smartest move they have made in 20 years including the Red Hat acquisition, which was brilliant. IBM should have gotten rid of all the old IBM legacy units when it bought Red Hat. Now is the right time to create two market-leading companies focused on what they do best”, said Martin Wolf, president of Martinwolf M&A Advisors.