International Business Machines Corp. is planning to spin-off its managed infrastructure services unit into a public company. This move will help the company concentrate on the increased demand for cloud services, giving tough competition to the likes of Amazon Inc. and Microsoft Corp.
NewCo: IBM’s spin-off for its managed infrastructure services unit
Following this announcement, IBM’s shares closed up at 6%. The company plans to spin off this managed infrastructure service unit into a new firm called NewCo by 2021. This new company will manage and streamline client-owned infrastructure. It also stated that this spin-off will open up a $500 billion market opportunity for IBM. The financial advisors for this deal are J.P. Morgan and Lazard.
Over the years, IBM has cut down its legacy businesses and shift focus on the cloud. It plans to become a major cloud services provider to deal with the slowdown in software sales and less demand for mainframe servers.
Spin-off planned to shift IBM’s focus to hybrid cloud and its AI capabilities
CEO Arvind Krishna says that the company’s software and solutions portfolio will contribute to major company revenue after the completion of the spin-off. The company will shift its focus to hybrid cloud and its AI capabilities. The spinoff NewCo will run and streamline the infrastructure of the world’s important organizations.
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In 2018, CEO Krishna led IBM to acquire Red Hat for $34 billion. An enterprise software maker, Red Hat is now a part of IBM’s hybrid cloud unit. CEO Krishna said that the success that the company had with this acquisition gave it the required confidence to make the right move.
CEO Krishna tells analysts to expect more acquisitions as the company aims for revenue growth
In the second quarter of 2020, the company’s hybrid cloud unit that includes Red Hat reported revenue of $5.75 billion. The Global Technology Services business from which NewCo would be formed reported revenue of $6.32 billion in Q2 2020, which is an 8% drop from the previous year.
The American multinational also provided the preliminary third-quarter financial results. It said that it expects revenue of $17.6 billion with an adjusted profit per share of $2.58. The company is expected to report its Q3 earnings on Oct. 21. CEO Krishna has also told analysts to expect the company to keep acquiring as it continues to look for avenues for revenue growth.