Troubled IT services company Atos saw its share price slump 27% this morning after announcing the surprise departure of its CEO Rodolphe Belmer after just six months and expanding on plans to split the business. Like many traditional service providers, Atos has struggled with the transition to cloud services and hopes that restructuring the company will put it in better shape to address the needs of its customers.
Belmer only took up the CEO post in January, but will leave in September, Atos announced today. Ahead of an investor event, the French company said it was studying whether to spin off its cybersecurity and big data business unit into a separate company.
Ahead of this potential split, Atos has appointed two deputy CEOs to lead two separate business units: Nourdine Bihmane will head up what is being called Tech Foundations, the company’s legacy IT infrastructure services, while Philippe Oliva will take charge of the company’s big data, cybersecurity and digital products under the name Evidian.
A decision on whether these two business units will be transferred to separate companies has yet to be taken, but the group’s reorganisation will result “in a significant reduction in the scope of the functions and a redefinition of the mission of the Atos CEO,” a statement from the company’s directors said. “Taking note of this evolution, Mr Belmer considered that he had no choice but to resign from his position.”
Any split would cost Atos €1.6bn in the 2022/23 financial year, a company statement said, but is expected to “unlock value” for the newly independent organisations.
Why has Atos struggled?
One of France’s biggest technology companies, Atos is seen as a national strategic asset on the other side of the Channel, and holds a number of major government contracts domestically and across Europe. It plays a leading role in efforts to develop the bloc’s supercomputing strategy, recently announcing plans to double its 8% share of the global supercomputing market in February when it unveiled its latest machine, BullSequana XH3000.
It does work with the UK public sector, too, and in May began a new £31m contract with the Department for Work and Pensions to supply managed IT services supporting the provision of personal independent payments.
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But overall the picture is not rosy, with revenue from its traditional IT infrastructure services declining as businesses shift more workloads to the cloud. Atos has been unable to grow cloud revenue sufficiently to cover this decline and has seen its overall income stagnate in recent years. The company’s total revenue for 2021 was $12.8bn, up from $12.7bn in 2020.
Belmer was recruited last year to try and introduce a new strategy for the business, but is said to have clashed with board members over its future direction. Reuters reports he was keen to sell the company’s highly profitable cybersecurity division, with another French tech behemoth, Thales, said to be keen to acquire it, but the plan did not receive the board’s support. The public wrangling over its future – and stalling revenue – has had a dire effect on the company’s share price, which dipped again today on news of Belmer’s departure.
Atos will include its cybersecurity division as part of Evidian, but this is not without its risks. “Tying the security business, which is the crown jewel, to transformation services, which have failed to grow in line with market trends, could cap [Evidian’s] possible valuation upside,” argues Bloomberg Intelligence TMT analyst Tamlin Bason.
Is Atos following the IBM blueprint?
The planned split of Atos bears a striking resemblance to the strategy deployed by IBM, which spun off its legacy IT infrastructure business into a new company, Kyndryl, in November last year so it could put all its efforts into cloud services.
“IBM is laser-focused on the $1trn hybrid cloud opportunity,” Arvind Krishna, IBM CEO, said when the split was announced. “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.”
Since the split Kyndryl has struggled, reporting a net loss of $2.3bn for 2021 and a 5% decline in revenue, to $18.5bn. IBM, meanwhile, reported revenue of $57.3bn, up from $55.1bn in 2020. While the long-term effect of the split is not yet clear, Atos appears to be embracing a similar strategy in the hope of returning to growth.
Read more: Does Kyndryl have a future as an independent business?