IBM CEO to spin off infrastructure services unit, stock surges

Wells Fargo Senior Global Equity Strategist Scott Wren on the state of the markets and the U.S. economy.

International Business Machines Corp. plans to spin off its business of managing clients’ information-technology infrastructure, as the 109-year-old tech pioneer sharpens its focus on the faster-growing cloud-computing business and artificial intelligence.

Ticker Security Last Change Change % IBM INTERNATIONAL BUSINESS MACHINES CORP. 134.42 +10.34 +8.33%

IBM said Thursday the soon-to-be-named company already has relationships with 4,600 clients in 115 countries and operates in what it sees as a $500 billion market opportunity.

The spinoff announcement comes a few months after the Armonk, N.Y., company said it was cutting an unspecified number of jobs in the first major workforce reduction under Chief Executive Arvind Krishna. He assumed the role in April and is trying to revive growth at the tech company. The layoffs were made against the backdrop of the Covid-19 pandemic, which has caused many IBM customers to dial back investments and hold off on big software deals.

Even before the health crisis, IBM has been struggling through a yearslong effort to reposition the company. Sales have fallen around 25% in the past eight years and the company trails the likes of Amazon.com Inc. and Microsoft Corp. in cloud computing — where companies rent rather than buy computing horsepower.

The separation would hive off a chunk of its global technology systems unit, which has been hurt by lower client volumes in recent years. Last year the unit was responsible for $27.36 billion in revenue, though that fell 6.1% from a year earlier.

The new company would be able to partner across all cloud vendors, providing the opportunity for stronger profits and cash generation, IBM said. The separation is expected to be tax-free to shareholders and completed by the end of 2021.

Shares of IBM, which closed Wednesday at $124.07, rose more than 10% in premarket trading Thursday.

IBM has been trying to capitalize on what it calls the hybrid cloud, which companies use to manage software and other systems across different cloud services and their own data centers. The company in 2019 bought open-source software company Red Hat Inc. for $34 billion in a bid to boost its standing in that market. IBM saw the deal, which was the most expensive in its history, as an opportunity to gain on competitors in cloud computing.

The company Thursday also reported third-quarter profit and revenue that were roughly in line with Wall Street’s expectations. For the September-ended quarter, IBM posted preliminary earnings from continuing operations of $1.89 a share, or $2.58 a share on an adjusted basis, on revenue of $17.6 billion. The company said it would release its full quarterly report later this month.

Write to Dave Sebastian at dave.sebastian@wsj.com