IBM splits business to refocus on cloud computing

The company’s shift towards cloud computing over the last few years sees IBM splitting their legacy infrastructures
15 October 2020

Now IBM CEO Arvind Krishna speaks on stage during the 2016 Wired Business. Source: AFP

  • Split follows IBM’s acquisition of RedHat in 2019 for US$34 billion 
  • IBM’s cloud revenue has gone up 30% to 6.3 billion, while RedHat revenue is up 17%
  • IBM set to make cloud computing technology enhanced by artificial intelligence as its enduring platform

IBM is making moves to “redefine” itself as a cloud and artificial intelligence business, first and foremost.

The continued, rapid adoption of cloud in 2020 has demonstrated just how decisively computing has changed, and IBM is now ready to place its chips on this side of its business going forward.

In a “landmark” shift, the 109-year-old company has announced the decision to split into two publicly traded companies to focus on high-margin cloud computing. The decision follows IBM’s acquisition of RedHat in 2019 for US$34 billion to bolster its cloud offering, and the introduction of new CEO Arvind Krishna, who replaced former CEO Ginni Rometty earlier this year.

Decisive measures

IBM’s shift towards cloud computing over the last few years has been said to compensate for slow software sales and seasonal demand for its mainframe servers, while the most recent move looks to be a continuation of that strategy.

One half of the business will retain the IBM brand, and continue to drive the growth of the computing giant’s hybrid cloud, analytics, and artificial intelligence (AI) endeavors.

The other — temporarily referred to as NewCo — will be spun off to focus on providing managed infrastructure services for organizations, leveraging an existing customer base that includes 75% of Fortune 100 businesses.

When looking at IBM’s most recent earnings report, overall IBM revenue is down 5.4% when compared to last year; cloud and RedHat revenue shows more promising results with cloud being up 30% to 6.3 billion, and RedHat revenue up 17%.

Besides the promising revenue figures, IBM’s strategy to split the company and diversify away from its legacy technology services is a decisive measure in response to how nearly all new software being created is falling within the cloud service realm.

“Our clients see the value of IBM’s hybrid cloud platform, based on open technologies, at a time of unprecedented business disruption,” said Krishna in a statement; “we are committed to building, with a growing ecosystem of partners, an enduring hybrid cloud platform that will serve as a powerful catalyst for innovation for our clients and the world.”

As corporate customers take advantage of the flexibility and cost savings that cloud technology affords, IBM is officially ready to make cloud computing technology enhanced by artificial intelligence as their enduring platform, despite trailing to the likes of Amazon, Google, and Microsoft.

The move comes in parallel to Oracle’s shift towards cloud infrastructure business who, like IBM, is another legacy company lagging in the cloud evolution. In addition, IBM has traditionally competed against Microsoft and Google, and the tech heavyweights have raced ahead with more success.

As IBM journeys down the hybrid path that was predicted to be worth at least US$1 trillion this year, the company’s corporate split seems a timely and somewhat inevitable gamble considering the hand they hold.