IBM spins off infrastructure unit to focus on hybrid cloud and AI strategy

James is editor in chief of TechForge Media, with a passion for how technologies influence business and several Mobile World Congress events under his belt. James has interviewed a variety of leading figures in his career, from former Mafia boss Michael Franzese, to Steve Wozniak, and Jean Michel Jarre. James can be found tweeting at @James_T_Bourne.

Updated Oct 9 IBM has announced it is making the managed infrastructure services part of its global technology business (GTS) an independent company to continue its ‘maniacal’ focus on open hybrid cloud and artificial intelligence (AI).

The independent company, which will be known initially as ‘NewCo’, will be created towards the end of 2021.

“Today, hybrid cloud and AI are swiftly becoming the locus of commerce, transactions, and over time, of computing itself,” wrote Arvind Krishna, IBM CEO, in a blog announcing the news. “Our intent is to concentrate our energy on the things that matter the most to our clients so we move them the furthest. As a more focused company, IBM will innovate and move faster, and invest more strategically in the future of our business.

“Going all-in on our open hybrid cloud platform and AI solutions will create value for our clients, our company, and our shareholders,” Krishna added. “This change best positions IBM for improved growth.”

Krishna noted that since day one of taking over the chief executive role from Ginni Rometty, his vision was that a ‘maniacal focus on open hybrid cloud platform and AI capabilities [were] key’ to growth. The letter to all employees, dated April 6 – as this publication reported – noted the ‘fundamentals [were] already in place’, and that IBM had ‘unique capabilities to help clients realise the potential of a hybrid cloud business model.’

CloudTech reported on Rometty’s departure in January and the task ahead for the new boss. Both Nick McQuire of CCS Insight and Bill Mew, a 16-year IBM veteran, said the ship needed to be stripped of any deadwood, with McQuire asking how the company could ‘create a cohesive vision that combines both the cloud business and the services business.’

Nine months on, this appears to be the answer. Krishna said IBM’s services business currently accounted for 60% of its revenue, making this an especially strong move. He also noted the potential of Red Hat in this shift, something Mew previously remarked upon.

“Our decision is also the logical next step in our pursuit of the $1 trillion hybrid cloud opportunity,” wrote Krishna. “The acquisition of Red Hat allowed us to build an open and secure hybrid cloud platform that cuts across all the places our clients do computing. This was the first major step to seize this opportunity and underpins everything that has followed.

“I am confident this is the right move and that our collective future is brighter as a result,” he added. “I am excited about the path ahead and the tremendous value we will create by having two companies focused on what they do best.”

Ted Schadler, VP principal analyst at Forrester, said the move got the thumbs up from the analyst firm for both sides of the party. “Infrastructure services has been a declining-margin business for years,” he said. “It’s driven off a “we’ll run your mess for less” value proposition for CIOs seeking to get out of the infrastructure management business. The truth is, there are big opportunities here to use automation and cloud migration to streamline the costs and capital requirements for infrastructure. So NewCo can also pursue an interesting growth path.”

The IBM units which remained, Schadler added, would be much better aligned towards CIO and digital transformation business need. “Almost half of the technology spend in the enterprise, and a much bigger percentage of the business-differentiating applications are in business, operations, marketing, and product budgets,” said Schadler. “IBM will be better prepared to help these buyers with AI, with hybrid cloud – a reality for our enterprise clients – and new business platforms.”

You can read the full blog here.

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