IBM Plans Spin-Off to Revive its Business

Technology giant, IBM is planning to break its businesses into two public companies. The company took this decision to mainly focus on high-margin cloud computing. Consequently, IBM would list out its information technology infrastructure services unit as a distinct company, that would get its new name and spun off by end of 2021.

In an Interview, Arvind Krishna, Chief Executive, IBM says, “Today is a landmark day for our company, we are redefining the future of IBM.” He adds, “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.”

The new unit would be the part of IBM’s global technology services division, it is expected to serve about 4,600 clients and has an order backlog of $60 billion. IBM’s spin-off is Arvind’s massive attempt to revive its business, which is hanging its future on cloud computing with an aim to be a pioneer in hybrid-cloud software.

Arvind further states, "The infrastructure firm will have greater agility to design, run and modernize the infrastructure of the world's most important organizations."

Recently, IBM has shifted its focus on cloud growth and it is planning to make up for the deteriorating software sales and the changing demand for its mainframe servers. Arvind also stated that IBM’s software and solution portfolio would account for the majority of company revenue even after the separation.

At present, IBM’s services business has not been performing well, as most of the clients are slowing the purchases of information technology or software upgrades to sustain the pandemic by stabilizing and restricting the cash outflow. Furthermore, the company has also cut down thousands of jobs this year as it restructures the business.

Post the segregation, both the companies would pay a combined quarterly dividend, initially. This is no less than IBM’s pre-spin dividend per share. However, IBM has also stated that it has expected third-quarter revenue of $17.6 billion and an adjusted profit per share of $2.58 on par with Street estimates.

Ginni Rometty, Executive Chairman, IBM says, "We have positioned IBM for the new era of hybrid cloud. This focus will result in greater value, increased innovation, and faster execution for our clients.”