IBM is spinning off its managed infrastructure services unit into a new public company. In a statement, the company said the move would help accelerate its hybrid cloud growth strategy and drive digital transformation.

“IBM is laser-focused on the $1 trillion hybrid cloud opportunity,” IBM chief executive officer Arvind Krishna. “Client buying needs for application and infrastructure services are diverging, while adoption of our hybrid cloud platform is accelerating.”

Following the spin-off, IBM will have more than 50% of its portfolio in recurring revenues. It said it will transition from a company with more than half of its revenues in services to one with a majority in high-value cloud software and solutions.

It said the new company will immediately be the leading managed infrastructure services provider with more than twice the scale of its nearest competitor. The new company does not yet have a name.

“We have positioned IBM for the new era of hybrid cloud,” Ginni Rometty, IBM executive chairman, said. “Our multi-year transformation created the foundation for the open hybrid cloud platform, which we then accelerated with the acquisition of Red Hat.”

IBM closed on its $34 billion acquisition of Red Hat in July 2019. The Red Hat deal, the largest ever for IBM, was led by Krishna who took over as CEO in April.

The company also released preliminary results for the third quarter, reporting expected revenue of $17.6 billion, diluted earnings from continuing operations of $1.89 per share, and operating, non-GAAP, earnings per share of $2.58.

The spin-off is expected to be tax-free and completed by the end of 2021.

IBM shares were up more than 7% in trading Thursday morning.

Johannes Eisele/AFP via Getty Images

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