Personal blog of Yzmir Ramirez

IBM, a company that originally made its name out of its leadership in building myriad enterprise hardware (quite literally: its name is an abbreviation for International Business Machines), is taking one more step away from that legacy and deeper into the world of cloud services. The company today announced that it plans to spin off its managed infrastructure services unit as a separate public company, a $19 billion business in annual revenues, to help it focus more squarely on newer opportunities in hybrid cloud applications and artificial intelligence.

Infrastructure services include a range of managed services based around legacy infrastructure and digital transformation related to it. It includes things like testing and assembly, but also product engineering and lab services, among other things. A spokesperson confirmed to me that the deal will not include the company’s servers business, only infrastructure services.

IBM said it expects to complete the process — a tax-free spin-off for shareholders — by the end of 2021. It has not yet given a name to “NewCo” but it said that out of the gate the spun-off company will have 90,000 employees, 4,600 big enterprise clients in 115 countries, a backlog of $60 billion in business “and more than twice the scale of its nearest competitor” in the area of infrastructure services.

Others that compete against it include the likes of BMC and Microsoft. The remaining IBM business is about three times as big: it currently generates some $59 billion in annual revenues.

At the same time that IBM announced the news, it also gave some updated guidance for Q3, which it plans to report officially later this month. It said it expects revenues of $17.6 billion, with GAAP diluted earnings per share from continuing operations of $1.89, and operating (non-GAAP) earnings per share of $2.58. As a point of comparison, in Q3 2019 it reported revenues of $18 billion. And last quarter IBM reported revenues of $18.1 billion. Tellingly, the division that contains infrastructure services saw declines last quarter.

The market seems to like the news: IBM shares are trading up some 10% ahead of the market opening.

The move is a significant shift for the company and underscores a bigger sea change in how enterprise IT has evolved and looks to continue changing in the future.

IBM is betting that legacy infrastructure and the servicing of it, while continuing to net revenues, will not grow as it has in the past, and as companies continue with their modernization (or “digital transformation,” as consultants like to refer to it today), they will turn increasingly to outsourced infrastructure and using cloud services, both to run their businesses and to build the services that interface with consumers. IBM, meanwhile, is in a race competing against the likes of Microsoft and Google in cloud services, and so doubling down on that part of the business is another way to focus on it for growth.

But IBM, often referred to as “Big Blue”, is also using the announcement as the start of an effort to streamline its business to spur growth (maybe we’ll have to rename it “Medium Blue”).

“IBM is laser-focused on the $1 trillion hybrid cloud opportunity,” said Arvind Krishna, IBM CEO, in a statement. “Client buying needs for application and infrastructure services are diverging, while adoption of our hybrid cloud platform is accelerating. Now is the right time to create two market-leading companies focused on what they do best. IBM will focus on its open hybrid cloud platform and AI capabilities. NewCo will have greater agility to design, run and modernize the infrastructure of the world’s most important organizations. Both companies will be on an improved growth trajectory with greater ability to partner and capture new opportunities – creating value for clients and shareholders.”

Its $34 billion purchase of Red Hat in 2019 is perhaps its most notable investment in recent times in IBM’s own transformation.

“We have positioned IBM for the new era of hybrid cloud,” said Ginni Rometty, IBM Executive Chairman in a statement. “Our multi-year transformation created the foundation for the open hybrid cloud platform, which we then accelerated with the acquisition of Red Hat. At the same time, our managed infrastructure services business has established itself as the industry leader, with unrivaled expertise in complex and mission-critical infrastructure work. As two independent companies, IBM and NewCo will capitalize on their respective strengths. IBM will accelerate clients’ digital transformation journeys, and NewCo will accelerate clients’ infrastructure modernization efforts. This focus will result in greater value, increased innovation, and faster execution for our clients.”

More to come.

When you’re a company the size of Facebook with more than two billion users on millions of servers, running thousands of configuration changes every day involving trillions of configuration checks, as you can imagine, configuration is kind of a big deal. As with most things with Facebook, they face scale problems few companies have to deal and often reach the limits of mere mortal tools.

To solve their unique issues, the company developed a new configuration delivery process called Location Aware Delivery or LAD for short. Before developing LAD, the company had been using an open source tool called Zoo Keeper to distribute configuration data, and while that tool worked, it had some fairly substantial limitations for a company the size of Facebook.

Perhaps the largest of those was being limited to 5 MB distributions with configurations limited to 2500 subscribers at a time. To give you a sense of how configuration works, it involves delivering a Facebook service like Messenger in real time with the correct configuration. That could mean delivering it in English for one user and Spanish for another, all on the fly across millions of servers.

Facebook wanted to create a tool that overcame those limitations, separated the data from the distribution mechanism, had a latency time of less than five seconds and supported 10X more files than Zoo Keeper. Oh yes, and it wanted all of that to run on millions of clients and handle the crazy update rates and traffic spikes that only Facebook could bring to the table.

The product the Facebook engineering team created, LAD (wonder how the Dodgers feel about this), consists of a couple of parts: A proxy that sits on every single machine in the Facebook family and delivers configuration files to any machine that wants or needs one. The second piece is a distributor, which as the name implies delivers configuration information. It achieves this by checking for new updates, and when it finds them, it creates a distribution tree for a set of machines, which are looking for an update.

As Facebook’s Ali Haider-Zaveri wrote in a blog post announcing the new distribution method, the tree methodology helps solve a number of problems Facebook faced when distributing configuration updates at extreme volume. “By leveraging a tree, LAD ensures that updates are pushed only to interested proxies rather than to all machines in the fleet. In addition, a parent machine can directly send updates to its children, which ensures that no single machine near the root is overwhelmed,” Haider-Zaveri wrote.

As for those limitations, the company has been able to overcome those too. Instead of a 5 MB update limit, they have increased it to 100 MB, and instead of 2500 user limit, they have increased it to 40,000.

Such a system didn’t come easily. It required testing and retesting, but it has reached production today — at least for now, until Facebook faces another challenge and finds a new way to do things nobody considered before (because they never reached the scale of Facebook).

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