IBM to break up 109-year old firm to focus on high-margin cloud computing

International Business Machines Corp is splitting itself into two public companies, capping 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 will list its IT infrastructure services unit, which provides services including technical support for data centers, as a separate company with a new name by the end of 2021.

Shares of the company were up 7% in early trading on the move by Chief Executive Officer Arvind Krishna, who also engineered IBM's $34 billion acquisition of cloud company Red Hat last year.

"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 blog, Krishna called the move a "significant shift" in the 109-year-old company's business model.

 

"IBM is essentially getting rid of a shrinking, low-margin operation given the cannibalizing impact of automation and cloud, masking stronger growth for the rest of the operation," Wedbush Securities analyst Moshe Katri said.

The company has shifted focus to cloud growth in recent years, aiming to make up for slowing software sales and seasonal demand for its mainframe servers.

Krishna, who replaced Ginni Rometty as CEO in April, said IBM's software and solutions portfolio would account for the majority of company revenue after the separation.

IBM said it expects to incur nearly $2.5 billion in expenses related to the unit spin-off.

The company also said it expects third-quarter revenue of $17.6 billion and an adjusted profit per share of $2.58, roughly in line with Street estimates.