International Business Machines Corp. (IBM) – Get Report shares jumped higher Thursday after the cloud-focused computer group said it would spin off its infrastructure division.
IBM said it will sell its ‘managed infrastructure services unit’, a legacy division that sits within the group’s global technology services group. The move will help concentrate IBM’s focus on hybrid cloud growth, the company said, which have been driving group earnings under new CEO Arvind Krishna.
IBM said the separation, a tax-free spin-off to IBM shareholders, will likely be completed by the end of next year.
“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,” Krishna said. “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,” he added.
IBM shares were marked 5.6% higher in pre-market trading following news of the division sale to indicate an opening bell price of $131.00 each, the highest since early June.
IBM’s second quarter cloud revenues rose 30% to $6.3 billion. as well as solid sales from its cloud and cognitive software division, following a re-focus of business operations and reporting strucures announced last year.
Free cash flow generation also impressed, growing 15% year-on-year and snapping several quarters of decline under the previous executive team, while margins and cash collections improved.