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Friday, December 4, 2020

IBM to spin off its IT infrastructure services into a separate public company.

  • IBM to spin off its IT infrastructure services unit into a separate public company.
  • The tech giant forecasts £3.87 billion of expenses attributed to the spin-off.
  • The announcement from CEO Arvind Krishna was well-received by investors.

International Business Machines Corp. (NYSE: IBM) said on Thursday that it will spin off its IT infrastructure services business into a separate publicly-traded company – a move that will help it expand its footprint in the high-margin cloud computing market.

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IBM’s legacy businesses currently provide technical assistance to nearly 4,600 clients in total, spread out across 115 countries. IBM values the backlog of its IT infrastructure services unit at £46.40 billion. Earlier this week, IBM announced three new AI solutions for brand and publishers.

The spin-off to result in £3.87 billion of expenses

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A name for the new company, as per IBM, will be revealed before the start of 2022. According to CFO James Kavanaugh, leadership structure for the new company that is expected to have a workforce of close to 90 thousand employees, will be revealed in the upcoming months.

Currently, IBM employs 352 thousand people worldwide. The technology company forecasts £3.87 billion of expenses attributed to operational changes and the spin-off at large. The announcement from CEO Arvind Krishna was well received by IBM’s investors on Thursday.

IBM opened close to 5.5% up in the stock market on Thursday and jumped another 2% in the next hour to hit an intraday high of £103.14 per share.

On a year to date basis, shares of the company are still about 2% down but have recovered sharply since March when the stock had plummeted to as low as £73.28 per share due to the Coronavirus pandemic that has so far infected a little under 8 million people in the United States and caused over 200 thousand deaths.

CEO Arvind Krishna’s comments on Thursday

Krishna’s leadership had it possible for the American multinational to acquire Red Hat (Cloud Company) in 2019. According to the CEO:

“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.”

IBM published its earnings report for the fiscal second quarter in July that topped analysts’ estimates for earnings and revenue. For the fiscal third quarter, the Armonk-based company now forecasts £13.61 billion of revenue and £2.0 of adjusted per-share profit.

At the time of writing, the American multinational technology company has a market cap of £90.55 billion and a price to earnings ratio of 14.92.

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