International Business Machines Corporation (IBM) announced Thursday that it is splitting itself into two public companies, the first time in the history of the 109-year company. IBM said it would be spinning off some of its lower-margin lines of business into a new company and focusing on higher-margin cloud services.
According to a report from Reuters, IBM will list its IT infrastructure services unit, which provides technical support for 4,600 clients in 115 countries and has a backlog of $60 billion, as a separate company with a new name by the end of 2021. The announcement cap a years-long effort by the world’s first big computing firm to diversify away from its legacy businesses to focus on high-margin cloud computing.
IBM was founded in 1911 in Endicott, New York, as the Computing-Tabulating-Recording Company (CTR). The company was later renamed “International Business Machines” in 1924. IBM is headquartered in New York and has operations in over 170 countries.
In an earnings call with investors, CEO Arvind Krishna acknowledged that the move was a “significant shift” in how IBM will work, but he positioned it as the latest in a decades-long series of strategic divestments.
“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,” he said. Krishna became CEO in April 2020, replacing former CEO Ginni Rometty (who is now IBM’s executive chairman), but the spin-off is the capstone of a multi-year effort to apply some kind of focus to the company’s sprawling business model.
IBM currently has more than 352,000 workers. The tech giant said it expects to record nearly $5 billion in expenses related to the separation and operational changes.
“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,” Krishna said on a call with analysts.
In a press release, IBM said the separation is expected to be achieved as a tax-free spin-off to IBM shareholders and completed by the end of 2021.
“IBM is laser-focused on the $1 trillion hybrid-cloud opportunity,” said Arvind Krishna, IBM Chief Executive Officer. “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 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 – creating value for clients and shareholders.”