IBM shook Wall Street on Thursday with a plan to spin off its information technology services unit as a separate company. IBM’s share price, which had previously lost 7% in 2020, gained 6% on Thursday.
After buying Red Hat last year for $ 34 billion, IBM CEO Arvind Krishna is focused on the opportunity to offer software tools for companies using cloud services. The old IT services unit still generates nearly $ 20 billion in annual revenue.
An example that I will tell you right away where we are investing organically, I do not think about mergers and acquisitions unless you give me an interesting name, is quantum computing. It’s probably beyond the sight of most investors, but you have many options. I think it’s a market worth hundreds of billions, but it will probably take five years to develop.
I also think that there are so many elements within how the A.I. It will be applied to automate, for example, all kinds of goods (transactions) from airplanes to loans, etc. We are just at the beginning of that market.
Can we conduct mergers and acquisitions, or acquisitions, to strengthen our technology platforms? An absolute yes, without qualifications. We are open to the public. As we find things that are appropriate, we will move on and continue to do so. And part of the reason for creating two companies is that it creates the space to be able to do more of that than we could have done before.
We all recognize that the world of technology moves quite quickly. What was incredibly valuable 20 years ago still has value, but it may not have value in terms of everything else. So when the world looked to data centers, clients, and servers and embraced the Internet, I think managed infrastructure services had great value because people were struggling with that heterogeneity and that complexity.
As we move to the cloud and applications become increasingly independent of infrastructure, people make decisions about applications separately from destination. If that’s the case, infrastructure modernization is a separate purchasing decision from applications and architectural platform decisions. That implies that it is better to separate them together.
You know, maybe over a beer one day, we can discuss what belongs to a company and what belongs outside of a company. I am not an economist. I’m an absolute engineer, but I think (Ronald Coase) said that the boundaries of a company should be determined by where there is more friction outward than inward. And I think that’s the criterion. You can always find some synergy. But is it better to unlock it separately or better together? That is always the question that as a leader like me, you are always thinking about.
So today, that part of the business would be the third in line with the massive capital investment within IBM. Number one will go to hybrid cloud, but number two would probably be listed as application service items: [NewCo] will be third. Now that they will not compete, they will be the first. I think we all agree that that makes a difference.
Two, the margin profiles of the two companies are quite different. So they can afford to do business. Or they can make deals that really [work] for them that we may not do today.
Three, when I look at partnerships, there are a lot of people who will agree to partner with NewCo and who might be a bit reluctant today as they might compete with other parts of existing IBM. So I think those three generate a lot of growth.
Well, until the spin-out, we are one company and they will not use another. We won’t have any control over them, let me be clear.
