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IBM Spinning Off Massive MSP Managed Infrastructure Services Unit

IBM plans to spin off the Managed Infrastructure Services unit — the managed services provider (MSP) business within IBM’s Global Technology Services division. The move will allow IBM to double down on the company’s own hybrid cloud strategy — which leans heavily on Red Hat OpenShift, CEO Arvind Krishna said.

The new standalone MSP business, whose name is pending, will manage customer-owned infrastructure. Key services of the spin-off — known for now as NewCo — will include hosting and network services, services management, infrastructure modernization, and migrating and managing multi-cloud environments.

Moreover, the MSP spin-off will increasingly support customer migrations to third-party public clouds — which means the standalone MSP business in some ways will be a super-sized version of Rackspace Technology (RXT). Indeed, Rackspace is a cloud-centric MSP that aggressively supports Amazon Web Services, Microsoft Azure, Google Cloud Platform and others.

Question – IBM’s MSSP Business: Will IBM’s MSSP cybersecurity business be part of the spin-out? ChannelE2E and MSSP Alert have reached out to the company for a comment on that question.

IBM MSP Business Spin-Off: Some Financial Details Released

IBM claims the MSP spin-off (aka NewCo) will be the “world’s leading managed infrastructure services provider.” That business unit, which will become a public held company, has more than 4,600 customers in 115 countries, including more than 75% of the Fortune 100, a backlog of $60 billion, and “more than twice the scale of its nearest competitor,” IBM asserts.

IBM did not disclose the spin-off’s current or anticipated MSP revenues or expected business valuation. The NewCo spin-off is expected to be completed by the end of 2021, the company said.

Although the standalone MSP will likely be a massive business, the spin-off may face growth challenges. The anecdotal evidence: In Q2, IBM Global Technology Services revenue dropped 8 percent to $6.32 billion due to declines in the company’s application management and consulting business. At the time, IBM did not say what percentage of the global services decline specifically involved the MSP business.

IBM Hybrid Cloud Strategy and Red Hat OpenShift

After the spin-off, IBM’s own revenues will largely shift from managed IT services toward cloud software and services. Among the key financial anecdotes to note:

  • Ahead of the spin-off, more than half of IBM’s revenues came from IT services, the company says.
  • After the spin-off, a majority of IBM’s revenues will come from cloud software and solutions, and more than 50 percent of IBM’s revenues will be recurring, the company says.

IBM CEO Arvind Krishna

Amid the spin-off plan, IBM CEO Arvind Krishna essentially is doubling down on a hybrid cloud growth strategy that leans heavily on Red Hat and cross-platform software that runs on-premises, in private clouds, and off-premises in public clouds. The hybrid cloud strategy competes against VMware and Nutanix, while striving to differentiate from public clouds such as  AWS, Azure and Google Cloud.

Ironically, IBM is stealing a page from the old Sun Microsystems Java strategy — a 1995 effort to help software developers create “write once, run anywhere” applications that weren’t locked to a particular operating system or vendor platform. (Oracle ultimately acquired Sun and Java in 2010.) Fast forward to present day, and Red Hat OpenShift strives to provide those “write once, run anywhere” capabilities.

Meanwhile, IBM’s own public cloud platform is growing and has a core Global 2000 customer following, but largely lags the rapid growth of AWS and Azure, and recent business accelerations at Google Cloud.

IBM MSP Spin-Off: CEO and Chairman Perspectives

In a prepared statement about the spin-off and IBM’s own hybrid cloud focus, CEO Arvind Krishna said:

“IBM is laser-focused on the $1 trillion hybrid cloud opportunity. Client buying needs for application and infrastructure services are diverging, while adoption of our hybrid cloud platform is accelerating. Now is the right time to create two market-leading companies focused on what they do best. IBM will focus on its open hybrid cloud platform and AI capabilities. NewCo will have greater agility to design, run and modernize the infrastructure of the world’s most important organizations. Both companies will be on an improved growth trajectory with greater ability to partner and capture new opportunities – creating value for clients and shareholders.”

IBM Chairman Ginni Rometty

Added  Ginni Rometty, IBM executive chairman:

“We have positioned IBM for the new era of hybrid cloud. Our multi-year transformation created the foundation for the open hybrid cloud platform, which we then accelerated with the acquisition of Red Hat. At the same time, our managed infrastructure services business has established itself as the industry leader, with unrivaled expertise in complex and mission-critical infrastructure work. As two independent companies, IBM and NewCo will capitalize on their respective strengths. IBM will accelerate clients’ digital transformation journeys, and NewCo will accelerate clients’ infrastructure modernization efforts. This focus will result in greater value, increased innovation, and faster execution for our clients.”

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