IBM CEO outlines plans for spinout of managed infrastructure unit
Partners reaction to new entity 'positive' as they see opportunity to strengthen hybrid cloud services, according to CEO Krishna
IBM's spin out of its Managed Infrastructure Services unit into a public entity will become the "number one" such company in the market, stated CEO Arvind Krishna.
Speaking to investors during its Q3 earnings call, Krishna elaborated on its plans for the new entity, which is yet to be named.
He said that the new firm and IBM will be able to leverage their relationships with one another while having more agility regarding their business models and freedom to partner with others.
"With the acceleration of the Red Hat platform adoption and the changes to clients' needs for application versus infrastructure services we are separating our Managed Infrastructure Services into a new publicly-traded company. The result is two market leaders with focused strategies and missions and improved growth trajectories," Krishna said on the call transcribed by Seeking Alpha.
"IBM is the number one hybrid cloud platform and AI company. NewCo will become the number one Managed Infrastructure Services company.
"As separate businesses, each can capitalise on their respective missions. Both will have more agility to focus on their operating and financial models. Both will have greater freedom to partner with others, and both will align their investments and capital structure to their strategic focus areas."
The chief exec said that the response from partners about the spinout has been positive as they see it as an opportunity to "further strengthen" go-to-market initiatives in the hybrid cloud, data and AI spaces.
Krishna - who took the CEO reins from long-standing predecessor Ginni Rometty earlier this year - previously proclaimed that Big Blue would have a "maniacal" focus on shifting to hybrid cloud.
"For IBM, as we look forward, the case for hybrid cloud is clear. Clients see two-and-a-half times more value in a hybrid cloud approach versus a public-only," he told analysts on the call.
"It is a tremendous opportunity valued at a trillion dollars with most of the enterprise opportunity ahead of us."
Big Blue's revenue dropped over two per cent year-on-year to $17.6bn for the three months ending 30 September. Total cloud sales grew 16 per cent in the quarter to $6bn and its Cloud and Cognitive Software unit, which houses Red Hat, saw sales jump seven per cent to $5.6bn.
CFO Jim Kavanaugh told investors that there was still a lot of work to be done going into the final quarter of 2020.
"It's our largest transactional quarter, we'll be focusing our investments in hybrid cloud and AI and of course we're starting the detailed work to separate our Managed Infrastructure Services business," he said.
"We are confident in the focus and direction of our business and what it means for our future."