IBM Spins Off $19 Billion “Managed Infrastructure” Business; Shares Surge In Premarket

IBM shares surged 12% in premarket trade on Thursday after ‘Big Blue’ announced plans to spin off its $19 billion “managed infrastructure services” unit into its own public company.

The spin off, which is said to be tax-free for US shareholders, comes as the pioneering computing company shifts its focus from the clunky servers it provides and maintains for thousands of clients around the world to focus more on cloud computing, a business that is currently dominated by Amazon’s AWS.

The new unit, currently part of its global technology services division, serves 4,600 clients and has an order backlog of $60 billion, according to the press release.

The company says it hopes to finish the spinoff by the end of next year.

News of the spinoff comes as IBM cuts thousands of jobs to accelerate the re-shaping of its business as the pandemic drives its customers to delay purchases of information technology or software upgrades, and instead focus on their short-term financial survival.

IBM’s services business has been struggling, as many of its clients delayed purchases of information technology or software upgrades to focus on short-term stability and cash preservation to survive the pandemic. The computer services company has also cut thousands of jobs this year as it reshapes the business.

CEO Arvind Krishna is under tremendous pressure to execute a major turnaround plan to try and revive IBM after the last decade saw the company shrink as newer rivals muscled in to the IT business. The spinoff is the biggest move yet to try and revive IBM via a pivot to cloud computing, as ‘Big Blue’ aims to become the world leader in “Hybrid-Cloud” software and services (which combines private physical mainframes with public cloud services). IBM’s 2018 $34 billion purchase of Red Hat was a big part of the transition.

After the spinoff, both companies are expected to pay a combined dividend that is no less than IBM’s pre-spinoff dividend.