International Business Machines Corporation (IBM Inc.) announced Thursday it would split into two publicly traded companies, causing its stock value to rise sharply.
IBM officials said the legacy computer firm would diversify to focus on high-margin cloud computing.
IBM CEO Arvind Krishna said the timing couldn’t have been better “to create two market-leading companies focused on what they do best."
Its ongoing transition to the cloud business has been steady but heightened in 2019 when the world’s first computing firm acquired RedHat for $34 billion to bolster its cloud offerings.
The companies will get new names by the end of 2021 to take full advantage of the $1 trillion hybrid cloud business.
While this is a significant shift in the business model for the 109-year-old company, it is not its first big move.
“We divested networking back in the ’90s; we divested PCs back in the 2000s; we divested semiconductors about five years ago because all of them didn’t necessarily play into the integrated value proposition,” Krishna is reported to have said on a call with analysts.
“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.
The company’s shift to cloud computing over the last few years has been aimed at compensating for slowing software sales and seasonal demand for its mainframe servers.
Krishna says he hopes that IBM’s software and solutions portfolio would account for the majority of company revenue after the separation.