IBM Splits Itself in Two to Focus on Cloud Computing
A Spin-Off a Century in the Making
After a 109-year stretch, International Business Machines Corp (IBM) announced on Thursday it will split itself in two. The multinational technology company headquartered in Armonk, New York said it plans to spin-off its IT infrastructure services unit into a separately traded public company to focus on its fast-growing cloud computing and artificial intelligence business units.
IBM currently employs more than 352,000 workers. The new company, currently being referred to simply as NewCo., will have roughly 90,000 employees and separate leadership, which will be announced in the coming months. This lower-margin IT infrastructure services unit currently provides technical support for roughly 4,600 clients in over 115 countries around the world.
A History of Strategic Shifts
This strategic reorganization of the iconic American company is one of the biggest shifts in IBM's history. In the 1980s, IBM was known for its dominance in the emerging personal computer space. However, it ultimately sold its operations in 2005 to Lenovo (LNVGY) after competitors like Dell Technologies (DELL) made remarkable gains in the space.
Similarly, IBM also decided to offload its burdensome and unprofitable semiconductor business in 2014. IBM actually ended up paying GlobalFoundries $1.5 billion six years ago so it could exit the chip operations business. Again, IBM simply could not compete with other players in the space such as Intel (INTC) and Taiwan Semiconductor Manufacturing Co. (TSM)
Head in the Cloud
More recently, IBM decided to focus on the cloud computing space, as evidenced by high-profile strategic decisions. Arvind Krishna, who ran the company’s cloud and cognitive-software division, was promoted to CEO this past April, taking the place of Ginni Rometty, who now serves as Executive Chairman. IBM also made its ambitions clear last year with its massive acquisition of open-source software giant Red Hat for $33 billion. This was the most expensive purchase in the company's century-plus-long existence.
Given the big gains companies like Amazon (AMZN) and Microsoft (MSFT) have made in the cloud-computing space, and the shift to remote working brought on by the pandemic, IBM sees room for growth. The company wants to chase what it calls the "hybrid cloud" where firms can manage systems and software across different cloud services and in-house data centers.
The decision to split the company in two was applauded by investors on Thursday. IBM's stock is negative for the year, but the announcement sent shares higher by 6%.
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Dollar General Eyes a New Demographic
Popshelf Aims to Attract New Customer Base
Dollar General (DG) is opening up a new line of stores, but legacy customers at the discount chain might not recognize them. The new brand is called Popshelf.
Popshelf will sell non-essential goods, including home decor, cosmetic products, kitchen supplies, and party provisions for around $5 or less. The household income of Popshelf’s target customer is $125,000 per year. For contrast, Dollar General’s current customers are mostly women from households earning around $40,000 per year.
Shoppers around Nashville will be the first to experience Popshelf, but Dollar General plans to open 30 more stores in the suburbs of large metro areas before the end of 2021.
Seeking Relevance Mid-Pandemic
It may seem counterintuitive to open a chain of stores selling non-essential goods during a global pandemic that’s forced many Americans to make tough choices about what’s essential to their lives. Indeed, the idea for Popshelf came about before Americans ever heard of COVID-19. However, Dollar General thinks the new Popshelf brand could become more relevant due to the pandemic. According to Emily Taylor, Dollar General Executive Vice President and Chief Merchandising Officer, customers might be attracted to a store where they can indulge without worrying about their budget.
Plus, in the past few months, shoppers have bought more and more home decor items. Popshelf hopes to attract customers looking for “fun” purchases at a reasonable price in an ailing economy. Like many grocery chains, Dollar General has seen increased sales during the pandemic as shoppers stock up on cleaning products, canned goods, and paper products. In the last quarter, Dollar General’s sales ballooned by 19%.
Keeping the Brands Separate
Dollar General will still make a concerted effort to keep its discount chain brand separate from Popshelf. Over the past few years, the company conducted an experiment in stores by adding more holiday decorations, beauty products, and home decor items to its shelves. Executives decided they could attract more high-earning customers by creating a new brand for those items and separating it from Dollar General.
Instead of focusing on reliable, inexpensive household items, Popshelf will carry what the company calls “treasure-hunt items.” These limited-time-only products should spur more frequent shopping trips to Popshelf. With social media advertising, different items, and a special team hired to source new products, Popshelf will be a very different type of store.
Friday Fundings: Ÿnsect, Unqork, and Dispo
Future Sustainable Insect Farm Raises $224 Million
The world’s largest insect farm is one funding round closer to becoming a reality. Ÿnsect raised $224 million in both equity and debt, bringing the startup’s total funding to $425 million since 2011. Ÿnsect is more than a luxury ant farm, but it aims to use insect farming to solve problems like overpopulation and climate change.
To start, Ÿnsect will use mealworms and other bugs as a protein source for fish farms, which need about 44 million tons of fish-feed per year. Right now, Ÿnsect is working on building its insect farm in Amiens, France, which is scheduled to open in 2022. Eventually, the farm will employ 500 workers and produce 100,000 tons of buggy products per year.
Ÿnsect already secured $105 million in contracts, and is an attractive investment for firms interested in sustainability. One notable investor in the current round is Robert Downey Jr.’s FootPrint Coalition, a firm looking to fight climate change through investing.
Rapid Growth Continues for Unqork with New Funding
In a Series C funding round, Unqork, a software company that helps organize and manage various applications without requiring any coding, raised $207 million—bringing its total valuation to $2 billion.
Unqork is known for its easy-to-use, completely visual platform, which big businesses can use to build custom software. Unqork founder and CEO Gary Hoberman said Unqork is “in a unique position to capture the $500 billion wasted annually on custom enterprise code.” Hoberman said this round of funding would help Unqork speed up its growth.
The funding comes as Unqork experiences rapid growth. The company hired over 200 new employees so far this year, and announced year-over-year growth of 320% in the first quarter of 2020. Unqork also opened a London office, and operates on four continents.
Reddit Co-Founder’s Fund Invests in Disposable Camera App
Reddit co-founder Alexis Ohanian’s new venture-capital fund, Seven Seven Six, announced its first investment: Dispo, a smartphone app that mimics the experience of taking and viewing disposable camera photos. The app was created by YouTube personality David Dobrik and Instagrammer Natalie Mariduena.
Despite their popularity on existing social-media platforms, Dobrik and Mariduena created Dispo in search of a more analog experience. Dispo mimics the look of a disposable camera on the smartphone screen. After snapping a picture, users have to wait until the next day at 9 a.m. for photos to “develop.” The app is intended to help users focus on shared experiences without filters or other editing.
The app is a natural fit for Ohanian, who is interested in helping people find genuine connection through technology. The $4 million investment will contribute to the development of new features for Dispo.