Kyndryl spins out of IBM, stock starts trading on NYSE – and shares tumble

We're sure everything will be OK, its revenues have only fallen 37 per cent in the past decade

IBM has finally cut loose its multi-billion-dollar managed infrastructure business, renamed to Kyndryl, sending 90,000 staffers into a life that is less big and less blue.

The spin off, announced in October 2020, was completed today, meaning Kyndryl is now being traded as a separate entity on the New York Stock Exchange. Martin Schroeder, a former IBMer and now Kyndryl CEO and chairman, said:

There is a large and growing need for digital transformation services, and our unrivaled global expertise in creating, managing and modernizing mission-critical information systems positions us well in a market that will expand to more than $500bn by 2024.

We look forward to the path ahead, with a flatter and faster company that is at the heart of progress for our customers and for the world.

The shares are trading under the KD symbol, and by the close of market today, the stock was valued at $26.38 apiece, down 6.7 per cent from its opening, and slipped further after-hours. It was otherwise a pretty unremarkable trading day, overall.

Big Blue hatched the plan to purge itself of Kyndryl – which is effectively the Global Technology Services (GTS) division minus Technical Support Services – a year ago. IBM is now plotting a future comprised of cloud, software, consulting and, for now at least, big iron.

The spun-off services biz, which sounds vaguely like decongestant medication or a Pokemon depending on how old you are, was dreamed up by marketers earlier this year. El Reg would love to know what that exercise cost. Apparently the name “invokes the spirit of true partnership and growth.” It is a fusion of kyn, derived from kinship, and dryl, drawn from tendril.

The board is made up of former Royal Bank of Scotland chief exec Stephen Hester, and current or past executives from Johnson & Johnson, Raytheon, Siemens AG, and more.

Trouble at mill

Within IBM, what was Kyndryl struggled in the era of the cloud as customers opted to use the services of the hyperscalers and few had an appetite for large-scale, multi-year outsourcing agreements for managed infrastructure.

With revenues declining, IBM chose to lay off workers in GTS, cutting costs to counter a shrinking top line. In 2011, the business unit turned over $40.88bn and at the end of 2020 that had tumbled 37 per cent to $25.81bn [PDF].

GTS had made a pre-tax adjusted profit of $67m last year but reported a net loss of $2.011bn after audit, advisory, legal, and restructuring charges were accounted for, according to an SEC filing in September.

Rivals Atos and DXC – the latter a merger of CSC and HPE Enterprise Services – have similarly found that making a living from infrastructure services is harder than it used to be.

Removing Kyndryl from the corporate balance sheet will heal some of the financial woe IBM is going through, at least that was according to Big Blue execs when revealing their financial figures for calendar Q3 of 2021: IBM revenues would have grown 2.5 per cent without including Kyndryl; with that unit in the mix, growth was just 0.3, they said.

IBM is now more strategically focused, more technologically capable, more committed to equity, inclusion and sustainability, and more financially sound

"IBM is now more strategically focused, more technologically capable, more committed to equity, inclusion and sustainability, and more financially sound," IBM CEO Arvind Krishna said today after the Kyndryl split, throwing what looks like a heap of shade on his now-former colleagues.

"We are better able to integrate technology and expertise to solve our clients’ problems, regardless of whether the solutions come from IBM, our business partners, or even our competitors."

Kyndryl has roughly 4,000 customers globally and will focus on selling managed services for multi-cloud environments; zCloud services; application, data, and AI services; network and edge services; security services; and digital workplace services.

Just as happened with HPE Enterprise Services, Kyndryl hopes that by flying the IBM nest, this will indicate to customers they can buy more than just IBM stuff from Kyndryl. This is something the senior leadership team is betting on. They expect revenue to start growing again in 2025.

If the exec team can pull off a miraculous transformation, their winning strategy will likely be taught in business schools for years to come. The alternative? Let's not go there yet. ®

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