French multinational IT services company Atos is planning to split in two, much as IBM spun out its legacy-focused managed infrastructure services business to form Kyndryl in November 2021.\n\nIt\u2019s a Hail Mary move for Atos. CEO Rodolphe Belmer, who was brought in on Jan. 1, 2022, to lead the company through the latest in a series of transformations, has nominated two deputy CEOs to lead the two new businesses, and has resigned, effective by the end of September.\n\nCustomers will have only just got used to the last shake-up, in February, which saw Atos reorganize its activities into three business lines. The largest of the three lines, \u201ctech foundations,\u201d bundles together what Atos calls its \u201cmature\u201d businesses: data centers and hosting; the digital workplace; unified communication and collaboration; and business process outsourcing. This business line accounted for just over half of all revenue at Atos in 2021. The other two business lines are \u201cdigital,\u201d which brings together digital transformation and decarbonization services, and \u201cbig data and security,\u201d focusing on research-intensive activities in cybersecurity, high-performance and edge computing, and mission-critical systems.\n\nAtos and its customers, which include hotel chain Accor, electronics supplier RS Components, and telco Telefonica, could pick up some pointers from how IBM handled its Kyndryl spin-off, as there are similarities between the two. Like IBM, Atos has a supercomputing business, operates its own data centers, and offers software, consulting, and IT services \u2014 albeit on a smaller scale. Atos has about one-third as many staff as IBM, which, before the split that gave rise to Kyndryl, employed 350,000 workers. IBM still has 282,000 employees, operating in 171 countries, while Atos employs 111,000, delivering IT services in 71 countries. Those staff are less productive, too: Whereas IBM reported revenue of $57 billion in 2021 (or $200,000 per head), revenue at Atos was just $12 billion ($108,000 per head).\n\nLegacy losses\n\nIBM was still broadly profitable when it split, having made a net profit of $5.7 billion in 2021, and saw the move as a way to free its high-growth cloud business from slower-growing legacy and maintenance activities. Atos, though, is in much worse shape: It lost around $3 billion in 2021, and its legacy (or \u201cmature\u201d) activities aren\u2019t just slow growing, they\u2019re actually shrinking: The tech foundations business line declined in size by about 12% last year, and had a negative operating margin.\n\nUnlike IBM, which spun out a business about one-quarter of its overall size, Atos plans to split itself into almost equal halves.\n\nOne of those halves will combine the company\u2019s faster-growing digital and big data and security (BDS) business lines, and spin out from its parent under the name Evidian, which Atos already uses for its identity and access management products. It will be led by Philippe Oliva, who joined in April 2022 from Eutelsat (also Belmer\u2019s former employer). Prior to that, Oliva spent almost two decades with IBM, much of it managing cloud and hybrid services.\n\nThe other half, consisting of the company\u2019s tech foundations business line, will retain the Atos name. To distinguish this smaller, future entity from present-day Atos, the company is calling it TFCo for now. It has been led since the February reorganization by Atos veteran Nourdine Bihmane. He\u2019s been with the company since 2001, just after the first appearance of the Atos name, although the company\u2019s origins go much further back, with at least part of its business tracing back over a century.\n\nAtos was formed through the successive mergers of a host of European IT services companies, including Philips Communications & Processing Services, BSO\/Origin, Cegos, Sliga, and Schlumberger Sema, some of them founded in the 1960s or 70s. In 2014 it bought Bull, a French mainframe and supercomputer founded in 1931. Bull was founded to compete with IBM, making and selling tabulating machines patented by their inventor as early as 1919 to rival those of Hollerith, the company that would eventually become IBM.\n\nIf Atos had hoped the plan to split the company in two would goose the share price, it was sorely disappointed. On June 14, the day of the announcement, it fell about 25%, and has slipped lower since, suggesting that investors think the company will be no more profitable or successful as two parts than as one.\n\nCIO concerns\n\nTo convince investors \u2014 and the CIOs it serves \u2014 Atos will have to address a number of issues.\n\nContinuity of service is likely to be one: Although the company is splitting along the lines of a reorganization already carried out in February 2022, the division into two companies will force Atos to duplicate central services such as billing or the systems employees use to communicate with customers.\n\nIBM helped allay customer fears by naming its spin-off\u2019s senior management team long before it named the new company. Atos chose to name its future CEOs, Bihmane and Oliva, on the same day it named the future companies, Atos and Evidian, but many of the other senior roles will have been settled in the February reorganization. The two halves, though, are each going to need their own CFO and other senior leaders they didn\u2019t need while under the same umbrella.\n\nFinding efficiencies and new business to return TFCo\u2019s legacy hosting and outsourcing businesses to growth, just as the world plunges into recession, will be another challenge. It\u2019s been trying throughout the COVID pandemic, but to no avail.\n\nBihmane has already set out his strategy to restore TFCo\u2019s growth, profitability, and cashflow by 2026.\n\nThe first step, Atos said, will be to rationalize the company\u2019s existing portfolio of activities, exiting non-strategic businesses and \u201cturning around or exiting negative margin accounts.\u201d Customers will have to pay attention here: Even if Atos decides to keep offering whatever it is they\u2019re buying, CIOs with good deals are likely to be asked to pay more or find another supplier.\n\nThe second step is more likely to affect TFCo\u2019s 48,000 employees, as the company attempts to \u201creset\u201d its cost structure through right-shoring (moving jobs where they\u2019re cheapest), \u201caddressing the age pyramid\u201d (good-bye experienced but expensive workers), \u201creducing third-party spending\u201d (laying off expensive contractors), and \u201cconsolidating data centers and facilities to drive cost savings\u201d (eliminating duplicate roles).\n\nIn the third step, \u201crebound,\u201d Atos plans to pivot to growth by developing new offerings and investing in sales capabilities.\n\nKyndryl started out with similar ambitions to transform its legacy activities, but its first full quarter as a stand-alone business was a rocky one. In the three months to March 21, 2022, it saw revenue decline 3% year on year at constant currency (7% in real terms), and it forecast that revenue for the year to March 31, 2023, would also be 3% lower than the prior year. There was a silver lining, though: Kyndryl managed to halve its net loss for the quarter ending March 31 as compared to a year earlier, and forecast a slight pretax profit for the next fiscal year.\n\nAtos forecasts that TFCo revenue will similarly continue to decline, falling from \u20ac5.0 billion ($5.3 billion) in 2022 to a low of \u20ac4.1 billion in 2024 and 2025 before returning to growth in 2026.\n\nThings may be easier for Evidian, the more forward-looking part of the proposed Atos split. It has been growing organically by 5% year on year \u2014 a pace that is expected to increase to 7% post-split \u2014 with an operating margin of almost 8%, expected to hit 12% by 2026. Its stock-in-trade, cybersecurity, is always in demand, and with energy prices spiraling upward, another of its activities, advising on reducing IT power consumption and carbon emissions, is much sought-after.