IBM Bets on Hybrid Cloud, Spinning Off IT Unit

By George Leopold

October 10, 2020

In April, IBM CEO Arvind Krishna emphasized the company’s hybrid cloud offerings upgraded through its 2018 acquisition of Red Hat and its OpenShift platform. Hybrid cloud was among the few bright spots in the company’s quarterly financial results.

The company restructured this week, announcing it is doubling down on its AI-driven hybrid cloud strategy by spinning off its managed infrastructure services unit. The move would allow IBM to be “laser-focused on the $1 trillion hybrid cloud opportunity,” Krishna said in announcing the split into two separate companies.

The tax-free spinoff of the new public company is expected to be completed by the end of 2021, the company said Thursday (Oct. 8).

IBM said the infrastructure spinoff, tentatively referred to as “NewCo.,” would free it to help cloud customers modernize legacy infrastructure. It also would allow the slimmed-down IBM to pursue its hybrid strategy that seeks to attract more mission-critical workloads currently restricted to in-house datacenters.

Source: IBM

The spinoff also frees IBM to leverage its Red Hat acquisition and its prospering OpenShift platform that has emerged as the centerpiece of IBM’s hybrid cloud strategy. That includes “building new AI-infused data analysis capabilities” on its hybrid cloud platform. The company also said it has more than 2,400 hybrid cloud customers, and has added more than 300 new partners using its or Red Hat’s hybrid cloud tools.

Industry observers said IBM’s sharper focus on hybrid cloud deployments could result in the new company collaborating with public cloud leaders as IBM pursues multi-cloud deployments intended to avoid vendor lock-in.

“By splitting its hybrid cloud and managed infrastructure business, IBM has acknowledged that its own cloud is holding back its ability to modernize legacy clients,” said Oliver Presland, vice president of global product management at Ensono, a provider of cloud, hybrid IT and mainframe modernization services.

“This is a bet-the-business move for IBM,” Presland continued. “On one hand it is risking the IBM name by going all in on hybrid cloud, and on the other hand it will try and partner with the likes of AWS and Azure to offer a more compelling upgrade path to existing clients on legacy infrastructure.”

The spinoff comes as the cloud infrastructure sector, which includes platform and hosted private cloud services, accounts for a growing share of the cloud revenues. Synergy Research reported last month that infrastructure services fueled a 20 percent annual increase in first-half “cloud ecosystem” revenues, totaling $187 billion.

“We forecast that annual spending on cloud services will double in under four years,” said John Dinsdale, chief analyst at Synergy Research.

HPC analyst Addison Snell said his firm, Intersect360 Research, has seen significant growth in managed services deployments over the past two years, including for HPC and AI, which he says is still accelerating.

“Strategically, it’s for IBM to decide whether HPC is an important segment,” commented Snell. “IBM was the onetime leader in HPC servers, and with Summit, IBM was on top of the supercomputing world. From that point, IBM began to de-emphasize HPC in favor of cloud and AI, and Power servers have been falling in share, though the company is still well-regarded, particularly for storage and services.

“The acquisition of Red Hat puts IBM in a position to create a truly differentiated intelligent cloud for enterprise. This divestiture could give that strategy more focus.”

IBM said its spinoff will eventually get an official brand name. The IBM spinoff will target the management and upgrading of customer-owned IT infrastructure, a market IBM estimates is worth $500 billion over the next several years.

A version of this story originally appeared on sister publication EnterpriseAI.news.

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