International Business Management ((NYSE:IBM) is spinning off its infrastructure services unit as it moves to focus on its fast-growing cloud computing business and artificial intelligence. The spinoff comes hot on the heels of the tech giant announcing plans to cut an unspecified number of jobs as it continues to reel from the effects of COVID-19. The company has since embarked on a restructuring drive as it looks to safeguard its future.
IBM Spin-Off
The infrastructure services unit that the 109-year old tech giant is spinning off boasts of relationships with over 4,000 countries. The unit also operates in a segment with a $500 billion market opportunity. The spinoff will result in the hiving off of a big chunk of IBM’s global technology system, hard hit by lower client volumes in recent years.
The infrastructure service segment has come under immense pressure in recent years. Last year it reported a 6.1% decline in revenues that came in at $27.4 billion. Slow growth in the unit has also taken a significant toll on IBM's overall performance. Sales have dropped to about 25% over the past eight years. The spinoff should be completed by the end of next year and expected to be tax-free for shareholders.
IBM Hybrid Cloud Focus
Wary of the fact that IBM lags Amazon.com, Inc. (NASDAQ:AMZN) and Microsoft Corporation (NASDAQ:MSFT) on cloud computing, CEO Arvind Krishna opted to spin off the unit to focus on segments with tremendous opportunities for growth. Likewise, IBM intends to partner across all cloud vendors in the aftermath of the spinoff.
IBM also intends to ramp up its efforts on hybrid cloud, a segment that continues to elicit strong demand as companies move all their operations to the cloud to manage software and other systems. The $34 billion Red Hat Inc. acquisition is spearheading big blue efforts in hybrid cloud.
Separately, IBM has released preliminary financial results for its recent quarter. Earnings are expected at about $1.89 a share or $2.58 a share on an adjusted basis on revenues of $17.6 billion. The company will release full results at the end of the month.