IBM’s bold plan to lead in the US$1T hybrid cloud market

2020 has been an unusual year across the board for businesses, governments, families and individuals. Tech giant IBM, who has been in Malaysia since 1961, has also had an unprecedented year. Despite the uncertainty that the pandemic has presented to business conditions and public health globally, IBM CEO Arvind Krishna has wasted no time to take bold steps to position the firm as the leader in hybrid cloud, an opportunity valued at US$1 trillion.

In Malaysia, spending on cloud is growing fast, local companies look to modernise, and compete in a global economy taking advantage of cloud technologies, as well as automation, AI, quantum and blockchain.

Last year, IBM acquired Red Hat the world’s largest provider of open source Linux for open hybrid cloud, for $34B. A lot of changes for the tech giant, who works with more than 75 percent of the world’s Fortune 100 and major businesses throughout Asia.

While the pandemic evoked some reactionary and discretionary cost savings in enterprises across the world, this pull back is now starting to slow, and it’s expected that forward looking companies that want to compete in the “new normal,” will be doubling down on their technology investments to be able to respond to whatever the future holds with cloud-based agility, optimised costs, and data insights.

According to a 2020 Institute for Business Value (IBV) study, 19 percent of Malaysian business leaders surveyed, their IT spend is allocated to cloud and they plan to increase the share of spend on hybrid cloud from present 36 percent to 46 percent by 2023.  In Malaysia, organisations expect to be using on average 9 clouds per organisation from a growing number of vendors by 2023.

To meet this demand with laser focus, IBM is splitting itself in two, to align closely with its clients and their needs and purchasing patterns. In October 2020, IBM announced a bold plan to spin-off its managed infrastructure services business as a separately listed entity by late 2021.  Representing 25 percent of IBM’s $80B revenue, the tentatively titled ‘NewCo,’ will be the largest stand-alone infrastructure services business in the world by a factor of two, with a backlog of $60B across 4,500 clients.

The move to spin off a “NewCo” will create two industry-leading companies, each with strategic focus and flexibility to drive client and shareholder value. In a press release distributed by IBM around the news, IBM CEO Arvind Krishna said, “Client buying needs for application and infrastructure services are diverging, while adoption of our hybrid cloud platform is accelerating.

Industry and financial analysts view the NewCo spinoff as a positive initiative. “NewCo has an opportunity to pivot to a more agile organisation and execute on an open-platform-centric strategy focused on cloud and AI,” says Linus Lai, vice president of IDC Asia-Pacific. “This is something which customers have highlighted as being important in their selection process for services providers. If executed well, the strategy will allow IBM and NewCo to create a world-leading, innovative cloud and AI company, and the world’s biggest pure-play managed infrastructure services company that can deliver on hyper-optimisation and the efficiencies of scale.”

No stranger to mergers, acquisitions, and major spin-offs, IBM has experience in both major structural transformation as well as reframing client engagements, go-to-market plans, and cultural changes needed for transformation success. Business transformation requires agility across all aspects of an organisation, and IBM is embodying this wholesale with one of the largest spin offs in corporate history, creating in a single day one of the world’s largest start-ups.

IBM’s managed infrastructure services team is already a world leader in hybrid managed infrastructure services, designing and executing large scale cloud migration projects for complex and highly regulated companies. IBM Services’ leadership in this space has been recognised for nine consecutive years by Gartner’s Hybrid Infrastructure Services Managed Services Magic Quadrant Report with IBM placed as Leader each year since the report began.

“We see an acceleration in the adoption of hybrid cloud as a result of the pandemic as companies turn to application modernisation, process automation, and AI infusion of its business operations. Our clients find that choosing an open hybrid cloud approach delivers 2.5 times more business value than relying on public cloud alone. We believe this spin off will allow both IBM and NewCo to be tighter aligned to our client’s needs, and to grow faster, separately,” said Saad Toma, IBM Asia Pacific Global Technology Services Leader.

“We also have witnessed an acceleration in cloud adoption in Malaysia as businesses leverage the power of cloud to stay competitive in the market. The adoption of cloud has been a central feature in developing new, digitally driven business models. These are all underpinned by the security, unmatched expertise in industry verticals, and deep commitment to open source innovation that clients expect from IBM,” he added.

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