IBM to spin off IT infrastructure unit, focus on cloud business

(Reuters) – International Business Machines Corp said on Thursday it would spin off its IT infrastructure unit to focus more on cloud computing, a high-margin business that has seen a boost as companies increasingly ramp up their digital shift.

Shares of the company were up nearly 14% in premarket trading.

IBM has trimmed its legacy businesses over the years to focus on cloud, aiming to make up for slowing software sales and seasonal demand for its mainframe servers.

Arvind Krishna, who took over as chief executive officer from Ginni Rometty in April, said IBM’s software and solutions portfolio will account for the majority of company revenue after the separation.

Krishna is known as the “principal architect” of IBM’s biggest acquisition, software company Red Hat, which was bought for $34 billion last year.

“The success we’ve had with Red Hat gives us confidence that this is the right move,” Krishna said, calling the move a “significant shift” in the company’s business model.

The separation of the new company, a tax-free spin-off to shareholders, will be completed by the end of 2021, IBM said.

IBM also said it expected third-quarter revenue of $17.6 billion and an adjusted profit per share of $2.58, in line with Street estimates.