October 14, 2020
Often referred to as its ‘legacy’ business
IBM is splitting into two separate companies, one focusing on AI and hybrid cloud, the other – on managed infrastructure services.
The part keeping the IBM name will place the recently acquired Red Hat business at its core, to facilitate the deployment of “powerful AI capabilities to enable the power of data, application modernization services, and systems.”
The other public company, temporarily known as NewCo, will focus on management and modernization of client-owned IT infrastructure, service delivery, and operational efficiency.
The business segments comprising IBM and NewCo earned substantially different revenue for the previous 12 months, with IBM accounting for $59 billion, and NewCo for $19 billion.
The new, restructured IBM will focus on technology and platform integration, digital transformations, and expects recurring revenue to account for more than 50% of its portfolio.
The company estimates the hybrid cloud market opportunity at $1 trillion; it claims 90% of enterprises are operating hybrid environments, with 60% of the opportunity residing in highly regulated industries.
"IBM is laser-focused on the $1 trillion hybrid cloud opportunity," Arvind Krishna, CEO of IBM, said. "Client buying needs for application and infrastructure services are diverging, while adoption of our hybrid cloud platform is accelerating.
“IBM will focus on its open hybrid cloud platform and AI capabilities. NewCo will have greater agility to design, run, and modernize 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.”
Meanwhile, NewCo will use AI and automation to help enterprise customers optimize performance and efficiencies in their data centers.
"We have positioned IBM for the new era of hybrid cloud," Ginni Rometty, executive chairman and former CEO of the company, said. "Our multi-year transformation created the foundation for the open hybrid cloud platform, which we then accelerated with the acquisition of Red Hat. As two independent companies, IBM and NewCo will capitalize on their respective strengths. IBM will accelerate clients' digital transformation journeys, and NewCo will accelerate clients' infrastructure modernization efforts."
IBM is not the first big tech company to separate some of its go-to-market approaches. Back in 2017, HPE launched Pointnext as its new technology services organization, supporting customers to speed their adoption of emerging technologies, including cloud computing and hybrid IT, big data, and digital transformation.
The separation of IBM into two companies is expected to occur by the end of 2021, pending regulatory approval.
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