Boring IBM Just Got a Lot More Interesting

Even after International Business Machines Corp.’s blockbuster $34 billion acquisition of whiz kid Red Hat last year, the company has struggled to change its image from a stodgy technology firm to a cutting-edge player in cloud-computing and software. Now a bit of financial engineering may help.

Early Thursday, IBM announced plans to spin off its managed infrastructure-services business, which accounts for roughly a quarter of its revenue, by the end of 2021. It will be a significant business model shift: After the transaction, the company’s services segment will move from a majority to a minority of its revenue mix. Management gave further details on a conference call, saying the newly spun-off company will be focused on “operational efficiency and cash generation,” which signals greater capital returns to shareholders, while core IBM will increase its research and development spending to spur more growth. As a result, the company expects revenue at core IBM to grow in the mid-single digits over the medium term. That would be a positive change compared with a series of quarterly sales declines for the company over the last two years.