IBM this week announced that next year it will spin out what will become the world’s largest IT services provider with more than 90,000 employees serving a base of more than 4,600 clients that generates more than $19 billion in revenue.
Today IBM generates a little more than half of its revenue from those services and claims the yet to be named company already has a $60 billion services backlog.
IBM CEO Arvind Krishna on a conference call with analysts said spinning off the Managed Infrastructure Services unit of IBM’s Global Technology Services division will enable IBM to “maniacally focus” on hybrid cloud computing and AI opportunities that represent a trillion dollar market opportunity.
The cost of this financial engineering effort, however, is steep. IBM will incur multiple charges, including $2.5 billion to spin out the new company and another $2.3 billion to set it up.
“Eventually we will get around to getting a name for that company,” said Krishna.
This shift will also create an IBM capable of generating double-digit growth that should result in a higher stock valuation at a time when investors are pouring billions of dollars into software companies.
IBM this week also disclosed it has 2,400 hybrid cloud platform clients and that the number of larger deals driven by Red Hat software has increased by a factor of two. IBM has also added more than 300 partners in the last year that are focused on Red Hat platforms, noted Krishna.
Those partners are generating six to eight dollars of services revenue for every dollar of Red Hat revenue, added Krishna.
IBM will retain control of its IT infrastructure platforms in addition to continuing to provide managed services via Red Hat, which in addition to licensing its Red Hat OpenShift business provides a managed service dubbed Red Hat OpenShift Dedicated.
Nevertheless, the amount of channel conflict that has swirled around IBM for decades should be reduced significantly in the years ahead. It may take IBM a year or more to make this transition but ultimately the new company IBM is creating should just be one more channel partner among many.
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