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October 8, 2020
IBM on Thursday announced a strategic plan to unleash the power of the company on the $1 trillion hybrid cloud opportunity.
To achieve this vision, IBM will separate the managed infrastructure services unit from its Global Technology Services division. It will become a new public company, a spinoff that for now IBM is calling “NewCo.”
IBM’s Arvind Krishna
“IBM is laser-focused on the $1 trillion hybrid cloud opportunity,” said Arvind Krishna, CEO of IBM. “Client buying needs for application and infrastructure services are diverging, while adoption of our hybrid cloud platform is accelerating. 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 — creating value for clients and shareholders.”
Ultimately, the company split will simplify and optimize its operating model for speed and growth, according to the vendor.
Last year’s calculated acquisition of Red Hat puts IBM’s open hybrid cloud platform, based on Red Hat OpenShift, at the heart of its strategy. That strategy is to be a leading hybrid cloud and artificial intelligence (AI) vendor driving digital transformation for businesses.
With tighter integration and a focus on open hybrid cloud and AI, IBM will have more than half of its portfolio in recurring revenue. That’s a move away from having half its revenue in services.
IBM’s Systems business, integrated with the hybrid cloud platform, allows cloud-native developers to capitalize on the capabilities of IBM’s hardware. The vendor will also leverage its long-term relationships with clients. And IBM said it will continue to drive the innovation in hardware that enterprises rely on for their most mission-critical computing needs.
Techaisle’s Anurag Agrawal
“It is brilliant, smart and the right move, a case where the two parts’ sum will be greater than one,” Anurag Agrawal, CEO and analyst at Techaisle, told Channel Futures. “Cloud customers may benefit from a laser-sharp focus engagement, innovation in new products and services. The three verticals – banking and financial services, industrial and manufacturing, regulated workloads – that IBM targets with its cloud services will benefit. Partners will gain advantage and can more easily participate in [any of] three cloud tracks – build, sell, service – because the partner program will be less diffused.”
Additionally, Agrawal notes that the managed infrastructure services business is vastly different from the cloud services portfolio.
“The former is a steady, multiyear contract business serving a set of enterprise firms,” he said. The latter needs agility, alacrity, and far more acumen than the infrastructure services business.”
Ginni Rometty, executive chairman of IBM, stepped down from her role as president and CEO in April. But she continues to have her hand in IBM’s transformation.
IBM’s Ginni Rometty
“We have positioned IBM for the new era of hybrid cloud,” said Rometty. “Our multiyear transformation created the foundation for the open hybrid cloud platform, which we then accelerated with the acquisition of Red Hat. At the same time, our managed infrastructure services business has established itself as the industry leader, with unrivaled expertise in complex and mission-critical infrastructure work. 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.”
The not so “NewCo” becomes a leading managed infrastructure services provider. The spinoff will leverage relationships with more than 4,600 technology-intensive, highly regulated clients in 115 countries. That includes more than 75% of the Fortune 100 and a backlog of $60 billion to create a giant of a competitor.
The new business will continue to invest in the next generation of transformational managed infrastructure services. The goal is to expand margin, growth and cash generation.
NewCo will help enterprises optimize performance with AI and automation.
Viewpoint Research’s Cyndi Privett
“I think this move helps solidify and streamline IBM’s identity and strategy. Ideally, each individual company will be better able to serve its own customers without confusing the market,” Cyndi Privett, principal at Viewpoint Research, told Channel Futures. “IBM’s partner community includes a broad array of MSPs, so this move potentially can also remove a source of friction between IBM’s services and those offered and delivered by IBM’s partners.”
IBM stands alone in its ability to pull off something like this.
“It’s in their DNA,” said Paul Cronin, CEO Apogee IT Services. “IBM has a strong software presence, that knowledge combined with their managed services, their technical services, their large clients, and global footprint — it’s genius.”
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