IBM sees fu­ture in the cloud, breaks off IT unit

Chattanooga Times Free Press - - BUSINESS - BY STEVE LOHR

IBM, through­out its 109-year his­tory, hasn’t of­ten led tech­nol­ogy trends. But it has adapted and even­tu­ally pros­pered time and again.

It is try­ing to go the adap­ta­tion route once again.

IBM on Thurs­day ac­knowl­edged the chal­lenge and em­braced the op­por­tu­nity for the com­pany in the ac­cel­er­at­ing shift to cloud com­put­ing. The com­pany said it was spin­ning off its legacy tech­nol­ogy ser­vices business to fo­cus on cloud com­put­ing and ar­ti­fi­cial in­tel­li­gence.

Arvind Kr­ishna, who be­came chief ex­ec­u­tive this year, called the move “a land­mark day” for IBM, “re­defin­ing the com­pany.”

The split-up strat­egy re­flects how de­ci­sively com­put­ing has

shifted to the cloud. To­day, nearly all new soft­ware is be­ing cre­ated as a cloud ser­vice, de­liv­ered over the in­ter­net from re­mote data cen­ters. The com­put­ing model af­fords cor­po­rate cus­tomers more flex­i­bil­ity and cost sav­ings, sold as a pay- for- use ser­vice or an­nual sub­scrip­tions.

IBM was late to the cloud mar­ket, which Ama­zon pi­o­neered when it be­gan Ama­zon Web Ser­vices in 2006. But IBM has made a ma­jor push into cloud ser­vices and soft­ware in re­cent years, punc­tu­ated by its $34 bil­lion pur­chase in 2018 of Red Hat, a dis­trib­u­tor of open-source soft­ware and tools used by cloud de­vel­op­ers.

In an in­ter­view, Ginni Rometty, IBM’s ex­ec­u­tive chair and for­mer chief ex­ec­u­tive, said cloud com­put­ing, en­hanced by ar­ti­fi­cial in­tel­li­gence, “is now IBM’s en­dur­ing plat­form.”

IBM is tai­lor­ing its cloud strat­egy to help cor­po­rate cus­tomers make the tran­si­tion to the new tech­nol­ogy and carve out a fast- grow­ing business amid the mar­ket lead­ers: Ama­zon Web Ser­vices, Mi­crosoft and Google.

The main business, re­tain­ing the IBM name, will be its cloud oper­a­tions, along with its hard­ware, soft­ware and con­sult­ing ser­vices units. They gen­er­ate about three-quar­ters of IBM’s rev­enue.

The business to be spun off, which is not yet named, is IBM’s ba­sic tech­nol­ogy ser­vices business, which main­tains, sup­ports and up­grades the com­put­ing oper­a­tions of thou­sands of cor­po­rate cus­tomers.

That business is siz­able, with sales of about $19 bil­lion a year, and will be­come a sep­a­rate pub­lic com­pany. But that business is not where the growth op­por­tu­ni­ties lie in the tech­nol­ogy business.

IBM has been un­able to gen­er­ate over­all growth for years, dis­ap­point­ing in­vestors. Last year, the com­pany’s rev­enue de­clined 3%, to $77 bil­lion.

IBM’s per­for­mance has been held back by the ero­sion of its old- line busi­nesses, even as newer busi­nesses like cloud grew.

Over the years, IBM has re­peat­edly sold off busi­nesses whose prof­itabil­ity was wan­ing to fo­cus on more prof­itable prod­ucts and ser­vices. Per­sonal com­put­ers, disk drives, chip man­u­fac­tur­ing and some tech­nol­ogy ser­vices have been shed.

But spin­ning off the tech­nol­ogy sup­port op­er­a­tion as a sep­a­rate com­pany is a par­tic­u­larly big step.

“IBM’s fu­ture is as a smaller com­pany, more of a niche tech­nol­ogy com­pany,” said Michael Cusumano, a pro­fes­sor at the Mas­sachusetts In­sti­tute of Tech­nol­ogy’s Sloan School of Man­age­ment.

The cor­po­rate split, Kr­ishna said, is in­tended to “un­lock growth” for the more fo­cused IBM. He added that the com­pany should de­liver “mid- sin­gledigit” rev­enue growth over the next few years.

AP FILE PHOTO/ RICHARD DREW

The IBM logo ap­pears above a trad­ing post on the floor of the New York Stock Ex­change. IBM says it is break­ing off a $19 bil­lion chunk of its business to fo­cus on cloud com­put­ing.

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