What business is IBM in today

IBM news current & today: "The end of IBM as we know it"

The separation should be tax-free for IBM shareholders who receive shares. Krishna calls the turning point a "milestone" in the history of Big Blue. The entire move is estimated to cost $ 5 billion by the end of 2021, when it's complete, according to IBM. The share reacted with a price jump of up to ten percent.

The company that was later to become IBM and is reverently called "Big Blue" has an eventful history. The first products on the market were wall clocks, scales and meat grinders for butchers, later around 1915 electromechanical tabs with punched cards and typewriters.

After a meteoric rise to become an integrated IT giant and inventor of the PC, the network business was initially sold in the 1990s, PC production was transferred to the Chinese Lenovo Group in the 2000s and chip production has recently been abandoned. Now it is obviously time to rejuvenate again and the IT services division has to go.

"In principle, IBM is shedding a low-margin, shrinking division that is cannibalized by the cloud and masking the stronger growth of other parts of the company," said Wedbush Securities analyst Moshe Katri. These parts are, for example, the management of hybrid clouds (cloud plus own data center on site) or multi-clouds (clouds from different providers such as Amazon, Microsoft or IBM managed and operated together), according to IBM a “one trillion dollar market. "

IBM split is just the beginning of a breakup

For Holger Müller, Principal Analyst at Constellation Research in Silicon Valley, this split-up of IBM that has just been announced is only the beginning of a break-up of the last remaining tech giant from the old days, when companies could still buy everything from a single source, from IBM: " That is the end of IBM as we know it, ”said Müller. And it is only the “first chapter of the renovation”.

The current IBM obtains half of its sales from services and, according to IBM, will generate "over 50 percent from recurring sales" after the spin-off, i.e. long-term contracts from cloud contracts such as Amazon's AWS or Microsoft Azure.

What hardly fits into this is the "Global Business Services" division, basically the consulting unit at IBM. She does not take care of cloud product or service development at IBM, but provides consulting, strategic advice or system integration for external customers. “We only saw the first chapter,” Müller told Handelsblatt. "Business services have to be outsourced next, the question is how and when." Because IT consulting contracts, which have already become fewer during the Corona period, no longer fit into the picture. "Only then will the product giant IBM Red Hat quantum computing come into being."

In 2016, another IT giant pulled the emergency brake in IT consulting. HP Enterprise sold its consulting business to CSC after a write-off of $ 8.5 billion, nearly 50 percent of the 2012 purchase price.

Basically, according to Müller, in the end IBM could return to its origins as an IT group. Quantum computers will be the first generation of mainframes to run entirely in the cloud, and they could be the new mainframe computers that IBM grew up on in the 1960s.

Wedbush Securities, meanwhile, is sticking to its "neutral" rating and a price target of $ 140 for IBM shares after announcing the split. In a research note, the investment house speaks of "aggressive growth targets" for the remaining business areas, but also sees that the abandonment of the "shrinking and low-margin business" gives management the opportunity to focus fully on the growth areas of hybrid cloud and artificial intelligence.

IBM announced preliminary results for the third quarter of 2020 on Thursday with sales of $ 17.6 billion and adjusted earnings of $ 2.58 per share.

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