Silver linings: How IBM’s reinvention highlights the rise of the cloud
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International Business Machines (IBM) shares rose almost six per cent yesterday after the tech firm announced plans to split its business into two public companies.
IBM, which is one of the world’s oldest computer companies, will spin off its legacy IT infrastructure business by the end of next year and double down its efforts on cloud computing.
It’s a logical move for the computing giant. But it also highlights the growing significance of cloud technology as businesses adapt to the fallout from the coronavirus pandemic.
The times they are a-changing
For IBM, the decision to split its business marks a “logical next step” as it shifts its focus towards emerging technologies.
It’s not the first time the company has adapted, as chief executive Arvind Krishna was keen to point out.
“We divested networking back in the 1990s, we divested PCs back in the 2000s, we divested semiconductors about five years ago because all of them didn’t necessarily play into the integrated value proposition,” he said.
Now, IBM is turning its attention to hybrid cloud — a mix of private, on-premises cloud and public cloud — which it says is a $1 trillion opportunity.
The move builds on IBM’s $34bn (£26bn) takeover of cloud computing firm Red Hat last year – a move pioneered by Krishna.
Building for the future
The motive is straightforward. Cloud computing and artificial intelligence are high margin businesses, and companies are increasingly favouring these new technologies over traditional computing.
“To drive growth, our strategy must be rooted in the reality of the world we live in and the future our clients strive to build,” Krishna wrote in a memo to staff.
“Today, hybrid cloud and AI are swiftly becoming the locus of commerce, transactions, and over time, of computing itself.”
That is not to say that demand for IT infrastructure has collapsed. IBM said it has more than 4,600 clients in 115 countries, with a backlog of orders worth $60bn.
But the company is hoping the separation will help to refocus efforts on different parts of the business.
Coming of age
IBM’s radical move will be a major shake-up for the global cloud market, which is currently dominated by Microsoft and Amazon Web Services.
While IBM already offers cloud services, the split signals its clear intention to target rapid growth and challenge the major players.
Oliver Presland, vice president of global product management at cloud computing firm Ensono described the split as a “bet-the-business move” for IBM.
“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,” he said.
More widely, though, IBM’s move highlights the steady rise of cloud computing as the most valuable strategy for businesses.
“The biggest benefits accrue to the business from faster time-to-market, simplified innovation, easier scalability, and reduced risk,” consultancy firm McKinsey wrote in a report published in July.
“Cloud platforms can help deploy new digital customer experiences in days rather than months and can support analytics that would be uneconomical or simply impossible with traditional technology platforms.”
These changes have been only further accelerated by the outbreak of coronavirus, which has forced companies to adapt to more flexible ways of working.
“Thanks to the pandemic, 2020 may well become known as the year cloud came of age,” Presland said.
“Cloud has become the de facto way for businesses to run their operations, embraced for its unparalleled flexibility and scalability, helping companies adapt to the world of Covid, and whatever comes next.”