IBM's Restructuring

IBM's Restructuring

over 3 years ago2 mins

Tech trendsetter IBM showed off a whole new look on Thursday, announcing plans to split itself into two separate companies 👯‍♂️

What does this mean?

By the end of next year, IBM will spin off its business that manages the technology infrastructure of some of the world’s biggest companies – a market worth $500 billion – into a new public company 📊 It’ll instead focus on the $1 trillion market opportunity in cloud computing and artificial intelligence (AI), via services like Watson (a Jeopardy-winning AI) and Red Hat (open-source software that cost IBM $34 billion in 2018). The company’s hoping the separation will set both firms on a path toward improved growth, higher profits, and bigger rewards for each set of investors.

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Why should I care?

Investors tend to categorize companies as either high-growth – if they grow earnings quickly – or high-yield – if they’re slower-growing but stable enough to pay dividends. IBM’s firmly in the latter category: it has a current dividend yield of 5.4% (calculated by dividing IBM’s forecasted dividends over the next year by its share price) 🤔 But considering its cloud computing segments are high-growth, the company might’ve thought its share price deserved to be higher (and its dividend yield – since the two move inversely – lower). By splitting up, then, it’ll create both a stable dividend-paying business and a higher-octane growth business.

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It was a sideshow to the main event, but IBM also revealed preliminary third-quarter results that were roughly in line with investors’ expectations. Its stock jumped 4% on Thursday, though chances are it was mostly thanks to the investors who bought in ahead of its upcoming split 💻 That could be an encouraging sign for the US tech titans that might eventually be forced to break up – not to mention for the investors who might end up richer if they are.

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