IBM's planned NewCo spinoff signals a 'maniacal focus' on hybrid cloud, AI
IBM announced Thursday that it will split into two separate companies – with one firm maintaining the three letters that date back nearly a century, and a newer publicly-traded operation that as of today is known simply as NewCo.
IBM will be focused even more intently on innovating its cloud platform and artificial intelligence tools, helping healthcare and other customers continue their digital transformation efforts, executives say. NewCo, meanwhile, will concentrate on helping clients drive operational efficiencies and revenue through infrastructure modernization and IT optimization.
WHY IT MATTERS
IBM Chief Executive Officer Arvind Krishna said he sees a "$1 trillion hybrid cloud opportunity" worldwide in the years ahead.
"Client buying needs for application and infrastructure services are diverging, while adoption of our hybrid cloud platform is accelerating," he explained, in a statement explaining the split and the new priorities for each company.
"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 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."
The split is planned to take shape as pro-rata spin-off to IBM shareowners, and is hoped to be completed by late 2021, according to the company.
IBM's $34 billion acquisition of Red Hat in 2018 was not an impulse buy. At the time, then CEO (and now executive chair) Ginny Rometty said the deal "changes everything about the cloud market. IBM will become the world’s number one hybrid cloud provider."
Two years later, the company is going all in on that strategy as it competes with Microsoft, Google and others in the space.
It will continue to build out the cloud platform to enable AI capabilities for data analytics, application modernization and more.
As it puts the focus on open hybrid cloud architecture, based on RedHat OpenShift, 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," it says.
The company will focus on enabling AI-powered analytics, providing regulatory controls and security, and enabling cloud-native developers to better capitalize on IBM's hardware.
As for NewCo – "to be named at a subsequent date," says IBM – the plan is to maintain momentum as a managed infrastructure leader for companies around the world and stay focused on optimization of their existing infrastructure with hosting, network services and cloud migration and management.
The spinoff will help enterprises optimize performance through AI and automation and "build agility and efficiency into their infrastructure and data centers," according to the company. "NewCo will be able to better modernize infrastructures for an unparalleled roster of clients in all industries, with relationships that have been built over decades."
With a focus on next-gen managed infrastructure services, NewCo will partner with other cloud vendors while maintaining a strategic partnership with IBM.
THE LARGER TREND
The logic behind such a move has been clear for a few years as cloud adoption, in healthcare and elsewhere, has accelerated.
"IBM is essentially getting rid of a shrinking, low-margin operation given the cannibalizing impact of automation and cloud, masking stronger growth for the rest of the operation," Wedbush Securities analyst Moshe Katri told Reuters.
Hybrid cloud, even with its unique security challenges also offers plenty of big benefits for healthcare organizations, who have shown a willingness to embrace cloud-forward strategies in recent years that would have been hard to imagine less than a decade ago.
And even before its wholesale push toward the cloud, IBM's advances in artificial intelligence were well documented, of course, especially in the healthcare space. Even if some have questioned IBM Watson Health's ability to deliver on some of its big cognitive computing promises, it continues to power operational efficiencies and new clinical decision support insights across hospitals and health systems of all shapes and sizes.
ON THE RECORD
"We have positioned IBM for the new era of hybrid cloud," said Rometty in a statement. "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."
"On my first day as CEO, I made a commitment to the growth of IBM. I stated that a maniacal focus on our open hybrid cloud platform and AI capabilities is key to this outcome," said Krishna in a letter to IBM staff. "Day by day, product by product, project by project – we are dedicated to helping our clients unlock the immense value this represents."