Search
Close this search box.

IBM Divestiture: Who Does it Really Impact?

IBM just announced it will spin off its managed infrastructure unit to double down on CEO Arvind Krishna’s strategy of transforming IBM.  While the market reacted favorably to the announcement, both NewCo and IBM will each face unique challenges.

Most of the news analysis so far has been focused on IBM’s corporate alignment and what it means for IBM.  But clearly, there are impacts outside of IBM.

NewCo

The as-yet to be named “NewCo” will “immediately be the world’s leading managed infrastructure services provider” as noted in IBM’s October 8th press release.  Unlike the new IBM, NewCo starts as the market share big dog without a leash.  NewCo will, of course, maintain a strong strategic relationship with IBM but will now benefit from the autonomy of this spin-off.

NewCo will have the freedom to expand its partnerships to include all cloud providers, expanding its capabilities to deliver services to its clients on the platforms they choose.  This, alone, expands the opportunity for NewCo to not only maintain its initial position as a market leader but grow its business as well.

NewCo will be responsible for the support of all cloud infrastructure, the support of all in-house infrastructure, and the support of hybrid cloud infrastructures.  The huge opportunity is magnified by the fact that IBM will now be all about software and subscription services for hybrid cloud and public cloud platforms and will not compete with NewCo.  IBM is not in the infrastructure support game any longer.

The “New” IBM

IBM is seizing the momentum from its acquisition and integration of Red Hat to spin off its managed infrastructure unit and completely rebrand itself as a cloud software and solutions company.   A spin-off like this leaves IBM with strong recurring revenue, a suite of hybrid-cloud software and solutions, and an infrastructure capable of scaling to meet demand for open cloud resources.

The challenge for IBM will be increasing its market share in cloud spending.  With strong recurring revenue and an infrastructure capable of scaling to meet the demands of the market, IBM will have the resources and muscle to grow its share.  But resources aside, will IBM be able to sell companies on the value of its hybrid cloud software and solutions offerings?

Based on IBM’s most recent earnings report, its cloud revenue grew 30% in the quarter to $6.3B with cloud revenue up 20% over the past 12 months. Spinning off its managed infrastructure unit allows IBM to stay laser-focused on its path to gaining greater penetration into both the hybrid cloud and public cloud markets.  Will IBM succeed?  Krishna is removing all distractions for his people to be successful.

Who Benefits from This Spin-off?

Simply put, the divestiture is a win-win for new customers, existing customers, and procurement departments.  It also has strong chances of paying off for IBM shareholders.  To put it simply, here’s my analysis:

Existing Customers: Companies that currently leverage IBM’s managed infrastructure services should see over time a more focused and self-reliant services organization no longer having to struggle with IBM’s internal disputes between its GBS and GTS over incident ownership, SME time, and incident resolution.  For those living these challenges today, the end is in sight.

New Customers: Companies looking for infrastructure transformation and support services no longer have a reason to exclude NewCo from consideration.  With the spin-off, NewCo can now cater its services to the specific needs of companies without bias or exclusivity to IBM’s platforms and software.

Procurement Departments: Could this be the beginning of the end of the IBM Customer Agreement (ICA)?  I, for one, hold out hope that its days are numbered.

Shareholders: Owners of IBM stock now have clarity on IBM’s strategic direction.  Decisions to buy, hold, or sell IBM stock will in large part be made on the belief or disbelief that IBM can be successful in growing its market share in cloud revenue.  How soon results show will indicate the direction IBM’s stock will go.

Will either or both companies be successful going forward?  NewCo is best positioned for success today and tomorrow.  The “new and now laser-focused” IBM still has strong headwinds to overcome to achieve its now very clear goal of being a market leader in both public and hybrid cloud.

Time will of course tell.

Post a comment below, find my other UpperEdge blogs and follow UpperEdge on Twitter and LinkedIn.  Learn more about our IT Services Sourcing and Negotiation Support.

Related Blogs