IBM to spin off managed infrastructure; call it NewCo

IBM on Thursday said it would spin off a unit that manages clients’ IT infrastructure and accounts. The newly made company, named NewCo will have nearly a quarter of its sales and staff. The new IBM will concentrate on cloud computing and artificial intelligence. It will help its customers modernize tech infrastructure such as private data centres.

"Now is the right time to create two market-leading companies focused on what they do best," says IBM CEO Arvind Krishna. "IBM will focus on its open hybrid cloud platform and AI capabilities. NewCo will have greater ability 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. They will create better value for clients and shareholders."

The spin-off news sent IBM shares up more than 6%.

About NewCo

IBM is touting NewCo, which has a $60 billion services backlog. It says it will be the “world's leading managed infrastructure services company.”

The services spin-off will have a revenue of $19 billion. Further, it will have more than 4,600 clients in 115 countries including more than 75% of the Fortune 100. IBM will retain $8 billion from the GTS cloud services consulting business. It will also keep its $16.63 billion Global Business Services unit with business, strategy and technology consultants. These are chartered with helping customers modernize existing applications.

Red Hat, which the company bought for about $33 billion, is key to what Mr Krishna called the latest enduring platform in the company’s 109-year history. IBM said it has already built platforms in mainframe computers, information technology services and middleware. The latter is a term for software that sits between operating systems and narrower applications.

The company bets that through the latest platform, customers will rely on multiple cloud services; that is, hybrid cloud. IBM’s platform allows developers to write their code once, and deploy it to these various clouds. Red Hat, founded in 1993 in North Carolina, provides crucial technology. It uses a proprietary version of Linux, the open-source operating system prevalent in the cloud. IBM acquired Red Hat in July 2019.