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IBM finally gets rid of some business to focus on the one that matters

October 9, 2020, 1:39 PM UTC

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International Business Machines, still the legal name of century-plus-old IBM, has managed over the years to pull off a dubious feat. Despite selling goods and services in one of the most dynamic industries in the world, the IT sector the company helped create, it has managed to avoid growing.

The company that was synonymous with mainframes, that dominated the early days of the personal computer (a “PC” once meant a device that ran software built to IBM’s technical standards), and that reinvented itself as a tech-consulting goliath, lagged while upstarts and a few of its old competitors zoomed past it.

What IBM excelled at more often was marketing a version of its aspirational self.  Its consultants would advise urban planners on how to create “smart cities.” Its command of artificial intelligence, packaged into a software offering whose name evoked its founding family, would cure cancer. Its CEO would wow the Davos set with cleverly articulated visions of how corporations could help fix the ills of society.

What IBM did not do was grow or participate sufficiently in the biggest trend in business-focused IT, cloud computing. Now, in the words of veteran tech analyst Toni Sacconaghi of research shop Bernstein, new IBM CEO Arvind Krishna is pursuing a strategy of “growth through subtraction.” The company is spinning off its IT outsourcing business, a low-growth, low-margin portion of its services business that rings up $19 billion in annual sales. Krishna told Aaron and Fortune writer Jonathan Vanian that he plans to bulk back up after the spinoff via acquisitions. “We’re open for business,” he said.  

The move is bold, if risky. The reason it took so long, and presumably a new leader, to jettison the outsourcing business is that it was meant to drive sales of IBM hardware and other services. But Krishna, promoted for his association with IBM’s nascent cloud-computing effort—just as Microsoft Satya Nadella ran his company’s cloud arm before taking the top job—recognizes that only by discarding a moribund business can IBM focus and invest properly in the one that matters.

Adam Lashinsky

@adamlashinsky

adam.lashinsky@fortune.com

This edition of Data Sheet was curated by Aaron Pressman.

NEWSWORTHY

When the chips are down. While IBM's CEO dreams of the acquisitions he wants to do in the future, Advanced Micro Devices CEO Lisa Su is using her strong stock price to go shopping. She is reportedly looking to buy Xilinx, which makes field-programmable gate arrays, for $30 billion, the Wall Street Journal reports. Elsewhere in stock market news, PayPal mafia member-in-good-standing Max Levchin is taking his online lending startup Affirm public soon. The company, which partners with Walmart, Peloton, and many others to offer consumers monthly installment payment plans, filed confidentially, so stay tuned for more details.

Truth in labeling. Speaking of AMD, the company also detailed its newest generation of desktop CPUs. The Ryzen 5000 series goes on sale November 5 for $300 to $800 with chips including up to 16 cores. The new feature that Yelp announced on Thursday is a lot less technical. Business profiles may be tagged with a new alert, "Business Accused of Racist Behavior,” which will have a link to news of the reported incident.

Queen's browser gambit accepted. I had been debating in my head what to do when my year of free Apple TV+ ran out next month. Apple has postponed my dilemma, saying last year's promotion will be extended until at least Jan. 31, 2021. Nice. Now I can use that freed-up thinking time to ponder getting a Microsoft Game Pass subscription for the fam. Though Apple barred the Game Pass app from iPhones, Microsoft is thinking of using Amazon's end-run strategy that I explained the other day: offer streaming games via the iPhone's web browser.

There must be 5G ways to leave your network. Amid a lot of confusing chatter from the Trump administration on a nationalized 5G wireless network comes word that the Pentagon is investing $600 million in a series of 5G trials for military applications. The money in this case is going to big corporations, including AT&T, Samsung, Nokia, and Ericsson.

I just love this headline: Five Hackers Found 55 Bugs in Apple Products in 3 Months and Made $51,500.

FOOD FOR THOUGHT

While we're all getting expert at Zooming and Slacking and so on, tech moves ever onward. Ethan Murray, a partner at Oliver Wyman, has an essay in the Harvard Business Review about future office collaboration developments.

Practically every large corporation we speak with today is asking for innovations to make virtual working sustainably productive.

This will drive the next wave of mixed reality, with solutions like artificial intelligence tools that can create optimal rotations of “serendipitous” encounters across teams and functions; affordable home smart boards and large multi-monitor displays that will move virtual collaboration from laptop screens to a more immersive full-size format; 3-D printers that will allow design teams to physically test prototypes around the world from their home offices; and for things that can’t be produced at home, fast cross-town home deliveries by drones of virtual happy hour supplies like wine and painting kits.

FOR YOUR WEEKEND READING PLEASURE

A few great long reads I came across this week:

Scars, Tattoos, And License Plates: This Is What Palantir And The LAPD Know About You (BuzzFeed)
Newly revealed documents show how Los Angeles police were trained to use the flagship product of the most secretive company in law enforcement.

The economics of vending machines (The Hustle)
The pandemic has boosted interest in vending machine ownership. But just how lucrative is the business?

Amazon Wants to ‘Win at Games.’ So Why Hasn’t It? (Wired)
After brute-forcing its way to dominance in so many industries, the tech leviathan may finally have met its match.

A Columnist Makes Sense of Wall Street Like None Other (See Footnote) (New York Times)
Finance journalism isn't known fro its writerly voices. Matt Levine, the author of Money Stuff, is an oddball exception.

IN CASE YOU MISSED IT

Why Square went on a $50 million Bitcoin buying spree By Jeff John Roberts

How MessageBird became a tricorn By Lucinda Shen

How venture capital can increase diversity where it matters most By Alejandro Guerrero

Coinbase sees 5% of employees depart in wake of politics controversy By Jeff John Roberts

‘The best vaccine against chaos.’ Why this year’s Nobel Peace Prize went to the U.N.’s World Food Programme By David Meyer

Sheryl Sandberg: Senior-level women are leaving the workforce. If businesses don’t act, we’ll lose our best leaders By Sheryl Sandberg and Rachel Thomas

(Some of these stories require a subscription to access. Thank you for supporting our journalism.)

BEFORE YOU GO

We made it to Friday—what a week. If you're in need of some diverting entertainment this weekend, I'd heartily recommend Ted Lasso on Apple TV+, the silly but uplifting series about an American football coach (played by Jason Sudeikis) hired to manage a British soccer team.

Aaron Pressman

@ampressman

aaron.pressman@fortune.com