- Why did IBM enter the market originally?
URNAL. Monday, October 12, 2020 B3 BUSINESS NEWS IBM Spinoff Bet Isn't a Sure Thing a STEVE MARCUS/REUTERS The company will lose an- was disappointing. Such com- Plan to shed services other several billion dollars in panies generally did well in unit aims to lift stock, quarterly sales with the spinoff, their first year, the New York but would cost billions although it could help IBM to investment research firm said, get back to top-line growth by but after five years, just over a and risk loss of sales ditching a business that has third were performing better been shrinking. than the S&P 500 index. Parent BY ASA FITCH Mr. Krishna, who became companies mostly did poorly in chief in April, pledged the the five years after spinoffs, the International Business Ma- spinoff would help drive sus- study found, and on average chines Corp. Chief Executive tainable growth for IBM. The shares in the parent trailed the Arvind Krishna is betting on company, since Mr. Krishna stock index. 1 the well-practiced gambit of a took over, also acquired cloud Other tech companies have corporate divorce to revive the cybersecurity business Spanugo found that a split isn't a quick former corporate icon. But tech and a Brazilian Al software fix. Hewlett-Packard, another history shows the outcome can company known as WDG, to company with a storied history, 1 be disappointing. sharpen its focus on areas split off its server and corporate- The plan to spin off the unit where it sees growth. services business in 2015. The that manages clients' informa- The company seeks growth in new fields. An IBM quantum device. The move, to some observ- new company, called Hewlett tion-technology infrastructure ers, is long overdue. Much like Packard Enterprise Co., has un- and had around $19 billion in months to carve out the new on Thursday, though it re- other major IBM business exits, derperformed the market, and annual sales would likely repre- business it has pledged to es- treated Friday. this one is happening too its revenue has declined. Al- sent one of the biggest corpo- tablish with an investment- Through the split and a big slowly and too late to help the though HP Inc., the former par- rate separations in recent grade rating. Setting up the bet on cloud computing, Mr. company recapture its pastent, has faced its own challenges, years, according to Dealogic new publicly traded entity will Krishna is trying to inject glory, said Erik Gordon, a pro- it has managed to grow and en- data. But like many others, it involve about $2.5 billion in growth after a lost decade dur- fessor at the University of joyed a boost during the pan- comes with execution chal- costs, the company said. Re- ing which the 109-year-old Michigan's Stephen M. Ross demic that has fueled demand lenges. solving the structure and oper- company fell behind rivals. IBM School of Business. for laptops and at-home printers. Following the deal, IBM ations of the new entity-as has suffered 29 quarters of "Over IBM has experience with would have a further $2 billion well as its name-are still being year-over-year revenue declines they're in over with IBM, a business that shedding businesses to reinvent or so in business it currently addressed, Chief Financial Offi- over the past 10 years, and the seems smart to get out of to itself. The company was a pio- does directly with clients pass- cer James Kavanaugh said. company said that it expected everybody but IBM's manage- neer in personal computers, but ing through the new company, "We've got a lot of work to report third-quarter results ment," he said. "So they change exited under pressure from more and those sales could be in ahead of us," he told analysts that indicate another drop in the management, and then they nimble rivals. IBM sold its PC jeopardy if the split is executed Thursday. sales, Wall Street projects a re- get out of it." business to China's Lenovo poorly, said Lisa Ellis, analyst The plan was broadly well- treat in the current quarter as Boyar Research, in a study Group Ltd. in 2005 for $1.25 bil- at MoffettNathanson LLC. received by investors and ana- well, according to analysts sur- last year of 246 spinoffs, found lion, a deal widely regarded as IBM plans to spend 12 to 14 lysts. The stock rose almost 6% veyed by FactSet. that in most cases the outcome shrewd
