IBM to separate cloud and managed services divisions

IBM has announced that it will split its business, accelerating its hybrid cloud growth strategy, while separating the managed infrastructure services unit of its Global Technology Services division into a new public company.

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 chief executive Arvind Krishna. "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 artificial intelligence (AI) capabilities, while the NewCo will have greater agility to design, run and modernise the infrastructure of client companies.

Ginni Rometty, IBM executive chairman, added: "Our multi-year transformation created the foundation for the open hybrid cloud platform, which we then accelerated with the acquisition of Red Hat.

"As two independent companies, IBM and NewCo will capitalise on their respective strengths - this focus will result in greater value, increased innovation, and faster execution for our clients."

With tighter integration and focus on its open hybrid cloud and AI solutions, IBM will move from a company with more than half of its revenues in services to one with a majority in high-value cloud software and solutions. IBM will also have more than half of its portfolio in recurring revenues.

Meanwhile, IBM's business, strategy and technology consultants help clients transform by modernising their existing applications, and by building new AI-driven data analysis capabilities on the leading open hybrid cloud platform.

As part of this strategic acceleration, IBM is taking action to simplify and optimise its operating model for speed and growth. This includes streamlining its geographic model and transforming its go-to-market structure to better engage with and support clients.

The company is also continuing to consolidate its shared services. This simplified operating model will support accelerated innovation for the hybrid cloud, and provide more flexibility to increase investment in growth areas.

The new company - to be named at a subsequent date - will have relationships with more than 4,600 clients in 115 countries, including more than three quarters of the Fortune 100, as well as a backlog of $60 billion.

It will also be able to partner fully across all cloud vendors, opening new avenues for growth, while maintaining a strong strategic partnership with IBM and continuing to serve existing and new clients.

Following separation, the companies together are initially expected to pay a combined quarterly dividend that is no less than IBM's pre-spin dividend per share.

In connection with today's announcement, IBM provided preliminary financial results for the third quarter, It expects to report revenue of $17.6 billion and operating earnings per share of $2.58.

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