IBM stock up 6% as it spins off new firm for Hybrid Cloud biz

The 109-year-old IT giant IBM saw its stock rising six per cent as it announced to spin off its IT infrastructure unit into a new publicly-traded firm, temporarily called NewCo, by the end of 2021 which will focus on the $1 trillion Hybrid Cloud opportunity.

This creates two industry-leading companies at IBM, each with strategic focus and flexibility to drive client and shareholder value.

The separation is expected to be achieved as a tax-free spin-off to the IBM shareholders.

“IBM is laser-focused on the $1 trillion hybrid cloud opportunity. Client buying needs for application and infrastructure services are diverging, while adoption of our hybrid cloud platform is accelerating,” said Arvind Krishna, IBM CEO who took over from Ginni Rometty in April this year.

“Now is the right time to create two market-leading companies focused on what they do best,” Krishna said in a statement late on Thursday.

IBM will focus on its open hybrid cloud platform and AI capabilities.

NewCo will have greater agility to design, run and modernize the infrastructure of the world’s most important organizations.

“Both companies will be on an improved growth trajectory with greater ability to partner and capture new opportunities — creating value for clients and shareholders,” said Krishna.

Shares of the company closed up nearly 6 per cent

The new company will immediately be the world’s leading managed infrastructure services provider.

It has relationships with more than 4,600 technology-intensive, highly regulated clients in 115 countries, including more than 75 per cent of the Fortune 100, a backlog of $60 billion, and more than twice the scale of its nearest competitor.

The new company will be entirely focused on managing and modernizing client-owned infrastructures, which is “a $500 billion market opportunity”.

“NewCo 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.

IBM also provided preliminary financial results for the third quarter that ended on September 30. The company expects to report revenue of $17.6 billion.

“We have positioned IBM for the new era of hybrid cloud,” said Ginni Rometty, IBM Executive Chairman.

“Our multi-year transformation created the foundation for the open hybrid cloud platform, which we then accelerated with the acquisition of Red Hat,” she added.

As two independent companies, IBM and NewCo will capitalize on their respective strengths.

“IBM will accelerate clients’ digital transformation journeys, and NewCo will accelerate clients’ infrastructure modernization efforts. This focus will result in greater value, increased innovation, and faster execution for our clients,” Rometty noted.