Managed infrastructure has a new player. IBM’s big news — a spinoff of their managed infrastructure division, dubbed Kyndryl — effectively splits the company in two. IBM claims the move will create a more agile, resilient, and secure service offering. What are Kyndryl’s implications for the managed infrastructure sector?

Who — or what — is Kyndryl?

In October 2020, it was called New Co. Is Kyndryl more than a new name? By early 2022, we will likely have some answers to this question. So far, we know IBM is spinning off its managed infrastructure services (MIS) business into a new public company called Kyndryl. Kyndryl, which The Verge calls a “wacky new name,” divides the company’s legacy IT infrastructure clients from a leaner primary company set to focus on more cutting edge pursuits, such as the lucrative $1 trillion cloud market, security, and artificial intelligence (AI) products.

The Kyndryl business line is worth about $19 billion, while IBM Global Services is worth $8 billion for their cloud consulting division and another $17 billion for their business services unit — which includes systems integration, application management, and consulting. Red Hat will remain a primary service offering.

Kyndryl will be headquartered in New York City, and longtime IBM leader Martin Schroeter is taking the helm as CEO.  Elly Keinan will act as Group President, and Maria Bartolome Winans has been appointed Chief Marketing Officer. The corporate roster is filling up quickly, and it draws from IBM and other corporate giants, including NBC Universal, Lockheed Martin, and GE.

The Kyndryl split puts IBM at number two in terms of their book of business — just behind Accenture — but Kyndryl will be the largest MIS provider in the world and nearly double the size of the next largest competitor — from day one.

Why would IBM make this split — and why now?

IBM, Kyndryl, and operational resilience

This is the third segmentation of the core IBM business in the past decade. IBM sold off their customer care outsourcing to Synnex in 2013 and their PC business to Lenovo in 2014. So, Arvind Krishna’s move to split off legacy infrastructure services isn’t a complete surprise. Investors applaud the move from IBM’s relatively new CEO. The “why” was hinted at in a siliconANGLE article from May 2021. With COVID as the backdrop, the article discussed how “operational resilience has become the watchword for enterprises.”

IBM’s Kyndryl spinoff allows the core company to focus on key strategic priorities regarding cloud and hybrid technology and services. Kyndryl remains focused on their legacy book of business while working to manage and modernize their clients. This doesn’t mean IBM will seek to sell its new spinoff to the highest bidder. Of course, it also doesn’t mean they won’t. So, what’s the takeaway? We have some ideas.

Takeaways

How does Kyndryl’s debut affect other MIS companies? What are the implications for legacy IBM clients? The Motley Fool predicts four significant industry and financial implications of Big Blue’s big breakup.

• First, IBM’s top priority right now is building out their offerings for clients under hybrid cloud models. IBM can’t go head-to-head against leaders in the public cloud market, so it makes sense for them to focus on the midrange niche of enterprise organizations with one foot in the cloud and the other still on-site.
• Second, the move puts Kyndryl on the top of the heap for MIS, with more than 4,600 clients in 115 countries. There has been some concern about contract status for IBM’s existing MIS clients, but as MIS is Kyndryl’s proclaimed raison d'être, it’s not likely to rock the boat.
• Third, it’s likely Kyndryl will carry more debt than IBM when the split is final next year. IBM is steadily decreasing its debt load and even managed an 11% reduction from 2019 to 2020. It’s not likely to waste the opportunity Kyndryl presents for continuing that trend. 
• And finally, investors take note: IBM raised its dividend for the 25th straight year in 2020. Although how many shares of Kyndryl investors will receive remains unclear.

Windsor Group Sourcing Advisory remains committed to helping enterprise organizations build resiliency into their IT infrastructure.

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