Skip to Content
Stock Analyst Update

IBM Spins Off Infrastructure Services Business

The narrow-moat company claims this will help its remaining business focus on its hybrid cloud solutions.


IBM (IBM) announced its plans to spin off its managed infrastructure services businesses by the end of 2021. The narrow-moat company claims this will help its remaining business focus on its hybrid cloud solutions. We see little reason why the split would significantly boost IBM’s prospects in either business, although optically, IBM’s top-line growth rate should improve once managed infrastructure (named “NewCo” as a placeholder in the press release) is spun off. At this point, we are not assuming a drastically different business with the split from what we are modeling today. Additionally, IBM reported preliminary third-quarter results that were largely in line with CapIQ consensus. As such, we’re maintaining our $120 fair value estimate for IBM. Shares are up about 6% to $131 upon the news, leaving shares fairly valued, in our view.

While the remaining part of IBM’s business will aim to focus on hybrid cloud solutions, including Red Hat, we reaffirm our belief that an increasingly “mix and match” IT infrastructure world is working against IBM’s business that once found safety in its closed ecosystems. Even though having a hybrid IT infrastructure will be a lasting state for many of IBM’s customers, there are now many hybrid cloud platforms available outside of IBM, but also interoperability among them, which reinforces our negative outlook on the company.

On the flip side, concerning NewCo, we view managed infrastructure services as a dying business, and we’re skeptical that a spin-off will reinvigorate it. Revenue in this segment fell from $23 billion in 2018 to $21 billion in 2019 to only $19 billion in the trailing 12 months as of June 30.  Today, IBM’s managed infrastructure services makes up the largest portion of IBM’s total revenue compared with any other subsegment, but it has been a headwind to growth. Meanwhile, IBM’s remaining business outside of NewCo earned $59 billion over the past 12 months.

Morningstar Premium Members gain exclusive access to our full analyst reports, including fair value estimates, bull and bear breakdowns, and risk analyses. Not a Premium Member? Get this and other reports immediately when you try Morningstar Premium free for 14 days.

Julie Bhusal Sharma does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.

We’d like to share more about how we work and what drives our day-to-day business.

We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.

How we use your information depends on the product and service that you use and your relationship with us. We may use it to:

  • Verify your identity, personalize the content you receive, or create and administer your account.
  • Provide specific products and services to you, such as portfolio management or data aggregation.
  • Develop and improve features of our offerings.
  • Gear advertisements and other marketing efforts towards your interests.

To learn more about how we handle and protect your data, visit our privacy center.

Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.

To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.

Read our editorial policy to learn more about our process.