But clearly, there are impacts outside of IBM. Nonetheless, NewCo could fare better against IBM's IT services rival Accenture (NYSE:ACN) as a stand-alone company. Additionally, IBM will separate its Managed Infrastructure Services unit of its Global Technology Services division into a new public company ("NewCo"). Hear how teams are implementing a secure DevOps workflow to ship apps faster and confidently run them in production. The funny thing is, though, that mainframes didn’t go away. It would take a lot of capital, a lot of effort and management focus. Bernstein's Sacconaghi said that overall the analyst house was “modestly positive/incrementally hopeful that change is afoot” at Big Blue. Krishna said he expects IBM to “take a $2.3bn structural action in the fourth quarter.” Chief financial officer Jim Kavanaugh said it is doing this to “reposition both companies.”. Or is it the other way round? It would be like trying to catch a falling knife. He added: “The economics of a platform approach are compelling. Toni Sacconaghi, a Wall Street analyst on the call, described the spin-off as "essentially growth through subtraction," implying IBM is getting a GTS-shaped weight off its back. If people say no to these cookies, we do not know how many people have visited and we cannot monitor performance. For more info and to customise your settings, hit According to IBM, “NewCo” has relationships with more than 4,600 clients in 115 countries. IBM’s announcement of the separation stated that NewCo’s strategy is to modernize and transform that legacy business and turn it into an attractive portfolio. My advice? IBM claims this makes it twice the size of its nearest competitor. Our family of cloud paks extends capabilities with cloud ready open software packages integrated on OpenShift. 1. GTS also provides services involving hosting, networks, storage, data management, devices and IoT management. The new company will have 90,000 employees, out of IBM's current headcount of 325,000 employees, and its leadership structure will be named over the coming months. Of the two independent companies, IBM will focus on "digital transformation journeys" which will be a $1 trillion opportunity, and NewCo will work on "infrastructure modernization" which is a $500 billion market, according to Krishna and Rometty. Krishna made soothing noises about sustainable revenue growth, Sacconaghi acknowledged. The division has declined due to the impact of the cloud on big ticket outsourcing and the area has been subjected to annual redundancies since 2016, the most recent round starting in March. But a lot of value is generated above the platform layer: another $3 to $5 is spent on software, and another $6 to $8 on the cloud services. "IT outsourcing deals – like high-end mainframe and UNIX hardware – are typically strategic in nature, and anchored at the highest level of client organisations and provide a vehicle for selling in high-margin software and hardware," the analysts added. ", Sacconaghi added: “The alternative, more positive perspective is that such divestitures happen all the time in tech – HP, as was, saw a fair share of goings and goings under former CEO Meg Whitman – and IBM may be able to grow when unshackled from a unit that has been an anchor.”. Those 20,000 staffers would be about 6 per cent of IBM's 350,000-plus-strong workforce. As of June 2020, IBM said it has 2,400 clients using its hybrid cloud platform, tripling in the past 24 months. Top-performing DevOps teams automate more functions as part of their toolchain, including monitoring and security. “This ($2.3bn charge) is really centred around positioning NewCo to have a solid EBITA growth profile moving forward and address stranded costs, and also to enable significant financial flexibility to enable reinvestment back into our company [IBM] to accelerate that growth profile,” said the CFO. These cookies are strictly necessary so that you can navigate the site as normal and use all features. IBM's growth rate will rise by 100+ basis points following the spin-off, the analyst predicted. Many of them need help on that journey and hence our GBS portfolio helps our clients along that journey. The as-yet to be named “NewCo” will “immediately be the world’s leading managed infrastructure services provider” as noted in IBM’s October 8th press release. ESG’s Sinclair sees a possible silver lining, saying that independence from IBM could be a blessing for NewCo. IBM announced its intention to separate into two companies, and I blogged recently about some potential implications. I am the CEO of Everest Group, a management consulting and research firm I founded in 1991 with headquarters in Dallas and offices around the globe. According to Forrester veep and principal analyst Ted Schadler, IBM had to “streamline the business” to focus its mind on “application and digital business transformation opportunities.”. We then take advantage of the hybrid cloud platform to take them from where they are, to where they want to go. For now it's called NewCo, though IBM CEO Arvind Krishna said in a conference call with stock-market analysts last week, when the deal was announced, that a new name will be sought. The downside is NewCo likely will be distracted for a couple of years as it both separates from IBM and unbundles the IBM services. These are intriguing choices that all IBM customers will be forced to make. And for GTS? I am the CEO of Everest Group, a management consulting and research firm I founded in 1991 with headquarters in Dallas and offices around the globe. RESEARCH TRIANGLE PARK – IBM isn’t disclosing a great deal yet about the “NewCo” spinoff it announced Thursday, but some points have been made quite clear: Costs will be … Earnings announcement Press Release (85 KB) pdf. (IBM stock spin-off - Source: IBM investor relations) Implications for customers if a sale is not the intention. So, it is possible that IBM may be angling to sell NewCo to another firm. Here's an overview of our use of cookies, similar technologies and IBM said NewCo has a backlog of $60 billion and that it will be a publicly traded company. These cookies collect information in aggregate form to help us understand how our websites are being used. (IBM stock analysis - strategy - Source: IBM investor relations) The spin-off will be tax free and the company called NewCo. He added: "Let us be clear. This massive market opportunity could see IBM return to growth. That constituted 32 percent of its sales, and when it jettisons a little less than a third of itself with the NewCo spinoff announced a few weeks ago, these core systems will represent about half of revenues at the company. Krishna told analysts on the conference call that it was all about the money: “Our investment will be concentrated in areas that create value for our clients: hybrid cloud, data and AI, security and emerging technologies like quantum. That would be the risk. The purpose of this study is to provide readers with a framework to evaluate the potential financial impact for their organizations of an investment in a Pure Storage FlashArray storage solution. Our mainframe and software portfolio is where they tend to do that. IBM will be the leading hybrid cloud and AI company, while NewCo is expected to be the world’s leading MIS provider after the deal conclusion. The Global Technology Services (GTS) division, minus a few elements, will be carved out into a separate public company. Both firms have deep talent, but distractions can occur. ... a free pass on more restructuring, which we estimate could be 20,000-plus positions, Sacconaghi, of analyst house Bernstein, said in a note to investors that IBM’s split creates a “free pass on more restructuring – which we estimate could be 20,000-plus positions. “Your Consent Options” link on the site's footer. For IBM, the conscious uncoupling means it will be “maniacally focused on being the best hybrid cloud platform and AI company leveraging a leading open platform, our incumbency and our expertise to help clients with their digital transformations,” said Krishna. Most of the news analysis so far has been focused on IBM’s corporate alignment and what it means for IBM. Part of Situation Publishing, Biting the hand that feeds IT © 1998–2020, Also hosed out many Datrium staff on day one. They allow us to count visits and traffic sources so that we can measure and improve the performance of our sites. the analyst asked. NewCo. The NewCo – with a $60bn services backlog, 4,600 clients including 75 per cent of the Fortune 100, a reach into 115 countries, and for now 90,000 staff – will “build on its core strengths, managing complex and mission critical infrastructures,” said the CEO. "Cynically, one could argue that IBM's spinout simply represents financial engineering: IBM will boost its revenue and growth rate by spinning out IBM's negative growing, currently unprofitable ITO (IT outsourcing) business, and the company gets a free pass to do a significant restructuring which will materially impact free cash flow. It’s driven off a ‘we’ll run your mess for less’ value proposition for CIOs seeking to get out of the infrastructure management business. GTS, also referred to by IBM as managed-infrastructure services, provides outsourcing services and includes a unit called Information Technology Services that does project work for clients “mostly on their on-premises infrastructure,” Big Blue said. IBM's revenues were $106.92bn in 2011 and $77.1bn in 2019. Move some or all your work components to other third-party service providers that can focus exclusively on your company and your customers. It is still early days from the announcement, but there is no IBM announcement of a lead CIO or management team for the legacy spinout (“NewCo”). Management expects both … Over the past 25+…. The exec-level spin on the company being spun out is that it will be good for everyone involved: customers, investors, and employees. NewCo’s thousands of “technology-intensive” enterprise customers include many that are “in the highly regulated industries that have been very cautious about utilizing less mature public cloud services,” Abbott said. The spin-off currently named NewCo will handle IBM’s IT services while the original company will focus on AI and its cloud platform. You may opt-out by. and ensure you see relevant ads, by storing cookies on your device. See International Business Machines (IBM) stock analyst estimates, including earnings and revenue, EPS, upgrades and downgrades. This will include IBM’s Managed Infrastructure Services division. Without these cookies we cannot provide you with the service that you expect. The CEO said the spin-off “affords us optionality and we can pivot to a sale if qualified buyers emerge.” And to us, that seems to be what this whole exercise has been about. "IBM will arguably be more focused, and more svelte at $60bn in revenues vs $80bn today," said Sacconaghi. As 2020 unfolded, the way we work together changed in fundamental ways. OpenShift is our core product that captures the values and works through the entire range of clients,” said Krishna. IBM went through a near-death experience in the 1990s, but mainframes carried on being used for mainframe things and IBM remained a big tech company. IBM’s announcement of the separation stated that NewCo’s strategy is to modernize and transform that legacy business and turn it into an attractive portfolio. IBM said NewCo would manage and modernize client-owned infrastructures, which it said is a $500 billion market opportunity. NewCo is “already a market leader in scale and capability,” Krishna said. Over the past 25+ years, I have led Everest Group to be on the frontier of the global services industry – today that means delivering the critical expertise to help organizations drive and adopt complex business transformation, emerging technologies, and disruptive business models as new sources of growth and competitive differentiation. IBM Provides Historical Data to Reflect Offering Realignment August 02, 2019 IBM and Red Hat: Better Together July 09, 2019 IBM Completes Acquisition of Red Hat Quarterly Earnings 2020 Q3. Transformational infrastructure services unit from its Global Technology services division in production and security across AWS tools and services you. “ Linux is the de facto operating system standard and market share leader the will. The newly formed entity, temporarily named NewCo, will offer project and outsourcing services that currently fall under GTS. Newco, will be distracted for a couple of years as it both separates from and! Revenues vs $ 80bn today, '' he said '' he said ’ deteriorating.! Also change your choices at any time, by hitting the “ your Consent Options ” link the... Said it has 2,400 clients using its hybrid cloud platform from the previous trading session but are. Measured in MIPS ) has grown to be over ten times larger 2000! 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