This morning’s announcement from IBM regarding the separation of its traditional infrastructure services division clearly demonstrates that the company’s new CEO, Arvind Krishna, who assumed the position in April, is dedicated to prioritizing cloud technologies.

This action builds upon the strategic direction IBM initiated with the acquisition of Red Hat in 2018 for $34 billion. This purchase indicated a move toward a hybrid-cloud model, integrating on-premises infrastructure with cloud solutions—with Red Hat providing comprehensive management capabilities.

Despite IBM’s increasing focus on hybrid cloud, Krishna, like others, analyzed the financial performance and determined a greater emphasis on this area was necessary. The latest earnings report showed overall IBM revenue at $18.1 billion, a decrease of 5.4% from the previous year. However, revenue specifically from IBM’s cloud and Red Hat offerings presented a more encouraging picture: cloud revenue increased by 30 percent to $6.3 billion, and Red Hat revenue grew by 17 percent.

Furthermore, cloud revenue over the past 12 months reached $23.5 billion, representing a 20% increase.

A strong understanding of finance isn’t required to recognize the company’s future direction. Krishna recognized the necessity of shifting away from IBM’s older business areas, even acknowledging potential short-term challenges. He has therefore concentrated resources on areas poised for future growth. Today’s announcement is a continuation of this strategic effort.

IBM’s managed infrastructure services division is a significant operation, generating $19 billion in annual revenue, according to the company. However, Krishna was appointed CEO with the mandate to restructure the company, succeeding Ginni Rometti and making difficult decisions such as this.

While its cloud business is expanding, Synergy Research data indicates that IBM’s public cloud market share remains in the single digits, potentially around 4 or 5%. In fact, Alibaba has surpassed IBM’s market share, although both remain considerably smaller than the leading providers: Amazon, Microsoft, and Google.

Similar to Oracle, another established company transitioning towards cloud infrastructure, IBM still has considerable progress to make in its cloud development.

Like Oracle, IBM has been striving to catch up with the market leaders—Google at 9%, Microsoft at 18%, and AWS with a 33% share of public cloud revenue (as per Synergy)—for years without significant changes in its market position. Moreover, IBM directly competes with Microsoft and Google, both of whom are achieving greater success in the hybrid cloud market.

Although IBM’s cloud revenue is growing, its market share has remained stagnant, and Krishna understands the need for focused attention. Consequently, instead of continuing to invest in the legacy aspects of IBM’s business, he has chosen to separate that portion of the company, allowing for increased focus on the prioritized hybrid cloud business.

This strategy appears logical, but its long-term impact on IBM’s growth remains to be seen. Krishna is confident it will be effective, but realistically, he has limited alternatives.