December 2, 2020

IBM jumps 9% after it reveals plan to spin off legacy business to focus on cloud unit

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FILE PHOTO: A man stands near an IBM logo at the Mobile World Congress in Barcelona, Spain, February 25, 2019.    REUTERS/Sergio Perez
FILE PHOTO: Man stands near an IBM logo at the Mobile World Congress in Barcelona

  • IBM surged on Thursday after it announced plans to spin off its legacy managed infrastructure business so it can solely focus on building up its cloud division.
  • The spinoff is expected to be tax-free for IBM shareholders and will be completed by the end of 2021, the company said.
  • “IBM is laser-focused on the $1 trillion hybrid cloud opportunity,” IBM CEO Arvind Krishna said.
  • IBM also released preliminary third quarter earnings results.
  • Visit Business Insider’s homepage for more stories.

IBM is shedding its legacy business to focus on growing its cloud unit, according to a release on Thursday.

IBM will spin off its managed infrastructure business as a new publicly traded company in a tax-free deal for IBM shareholders. The spinoff is expected to be completed by the end of 2021.

The spinoff of IBM’s legacy networking business will allow the company to become “laser-focused” on the $1 trillion hybrid cloud opportunity, IBM CEO Arvind Krishna said.

The deal follows IBM’s continued transition to the cloud business, which was heightened in 2019 after it acquired RedHat for $34 billion to help bolster its cloud offering.

“Now is the right time to create two market-leading companies focused on what they do best,” Krishna explained.

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With IBM able to focus on growing its cloud business, the company said it will have “an enhanced financial profile with a clear trajectory for improved revenue and profit growth,” the company said.

News of the IBM development was well received by investors, with shares of IBM surging as much as 9% in Thursday trades.

Additionally, IBM released preliminary third quarter earnings results. The company expects to report revenue of $17.6 billion, and adjusted earnings per share of $2.58, beating analyst revenue estimates of $17.5 billion, and meeting analyst earnings-per-share expectations.

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