IBM, The Century-Old Tech Company, Announces its Plans To Split Into Two

Some companies can grow too large that it needs to have subsidiaries. Some others are faced with an ever-growing market that being a one entity can be difficult.

IBM is the "International Business Machine".

Founded in 1911 in New York, initially with the name Computing-Tabulating-Recording Company, IBM is regarded as one of the oldest tech companies around that is still thriving and competing with all of its might.

And this time, the company wants to split.

In an announcement, and detailed on its 2020 Strategic Update, the company wants to split into two different public companies.

IBM plans to create a new company called 'NewCo', to encompass its “Managed Infrastructure Services” division.

CEO Arvind Krishna said that NewCo will have 90,000 employees, $19 billion in annual revenue, a backlog of $60 billion, and will serve 75% of Fortune 100 companies when it makes its share market debut.

IBM, NewCo
IBM is creating 'NewCo', which focuses on “Managed Infrastructure Services”. (Credit: IBM)

CEO Arvind Krishna said that:

“We divested networking back in the 1990s, 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 that was the key architect behind IBM’s $34 billion acquisition of the cloud company Red Hat in 2019, also said that:

“To drive growth, our strategy must be rooted in the reality of the world we live in and the future our clients strive to build. Today, hybrid cloud and AI are swiftly becoming the locus of commerce, transactions, and over time, of computing itself.”

While NewCo becomes an infrastructure service company, IBM will focus open hybrid cloud and AI solutions to better compete with the likes of Amazon Web Services and Microsoft that are dominating the market.

IBM the company, will keep its traditional businesses and IT infrastructure services unit in operation, by continuing support for its 4,600 clients in 115 countries.

While IBM is a company remaining strong, it has sought to make up for its slowing software sales and seasonal demand for its servers.

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IBM, NewCo
Arvind Krishna, CEO of IBM.

This NewCo, according to Krisna in a blog post, "will be able to build a more efficient operating model focused on service delivery excellence and designed to offer the next generation of transformational managed infrastructure services."

This split marks the company's biggest shift to diversify, and venture away from its traditional business operations.

In Krishna's words, the split is a “significant shift” in the 109-year-old company’s business model.

At this time, IBM employs around 352,000 workers, and expects to record nearly $5 billion in expenses related to the separation and operational changes.

IBM plans to give this NewCo a permanent name in 2021.

Following the announcement, the company's shares managed to close nearly 6% higher.