Former IBM services outfit Kyndryl said to be mulling China split

There's no denying geopolitics is making it hard for multinationals in Beijing

IBM services spinoff Kyndryl is reportedly preparing to separate its China-based business in the face of ongoing geopolitical tensions between Beijing and Washington.

The infrastructure tech service provider is working to carve out operations in the Middle Kingdom, according to the Financial Times, which cited loquacious unnamed sources “with knowledge of the matter” who claimed that some senior employees already know about the decision.

We asked Kyndryl if it could confirm the move, and a spokesperson replied: "Kyndryl does not comment on rumors or speculation."

The company formerly made up the greater part of IBM's Global Technology Services division before it was spun out from Big Blue in 2021, and now lays claims to being the world's largest provider of IT infrastructure services.

At this stage it is not clear when this split may come into effect, nor who or what entity would step in to take control of Kyndryl’s China-based operations afterwards. The company employs 6,000 workers in China.

According to the FT, the reasons for this separation lies in the unrelenting dispute between the US and China over trade and technology, which has made doing business more complicated for many companies both inside China and elsewhere.

Customers in the Middle Kingdom are patriotically supporting local businesses more and more, in the process cutting back on the use of foreign technology companies. On the flip side, some US companies have asked for China-based employees not to work on their projects or to be closely supervised.

One company hit hard by the souring of US-China relations is Micron, which has seen its revenue nearly halve this year following the Beijing authorities labelling its memory products as a security threat, which had a chilling effect on sales in the country.

On the other side of the coin, Chinese tech giant Huawei suffered financial woes after it was singled out as a potential threat to telecoms networks by the US and its allies, with its profits dropping by 46 percent in the first quarter of 2023.

Other companies have also taken steps to break off ties with China in some form or another. Earlier this year, HPE said it was selling up its share of China-based joint venture H3C, which provides servers, storage and associated technical services.

HPE owned 49 percent of H3C, with the rest taken by China’s Unisplendour Corporation. The company denied it was selling because of the worsening US-China situation, but had previously expressed its satisfaction with the commercial side of the joint venture.

In more general news, Kyndryl has found itself embroiled in an age discrimination lawsuit linked to IBM this year, but also managed to bag itself a contract recently to manage the mainframe estate for UK tax collectors His Majesty's Revenue & Customs (HMRC).

For Kyndryl’s most recent earnings covering the first quarter of its 2024 fiscal year ending June 30, the company reported revenues of $4.2 billion, representing a decline of 2 percent versus last year, with a pretax loss of $109 million and a net loss of $141 million. ®

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