Economy

IBM Acquires Linux Developer Red Hat For $34 Billion

IBM Acquires Linux Developer Red Hat For $34 Billion”

The 108-year old IBM on Tuesday announced it has closed the acquisition of Red Hat, the world's leading provider of enterprise open source software solutions - a landmark move that positions IBM as the leading Hybrid Cloud provider and extend Red Hat's open source innovation to a broader range of clients. Previously, the company has made it clear that Red Hat will operate as a distinct unit within IBM's Hybrid Cloud team.

Analysts point out both IBM and Red Hat have built major enterprise cloud businesses with consistent strong revenue growth. CEO Jim Whitehurst will join IBM's senior management team and report to IBM CEO Ginni Rometty.

The companies said IBM and Red Hat will offer "a next-generation hybrid multicloud platform" that will be "based on open source technologies, such as Linux and Kubernetes". The company allows customers to integrate new and existing IT applications, develop cloud-native applications, standardize on operating system, and automate, secure, and manage complex environments.

"The Red Hat acquisition is expected to contribute approximately two points of compound annual revenue growth to IBM over a five-year period", said the company. The company lags behind Amazon and Microsoft in the cloud infrastructure business.

IBM has pledged to keep Red Hat's open source independence and neutrality.

Red Hat's fiscal year 2019 revenue was $3.4 billion, up 15 per cent year-on-year. Fiscal first quarter 2020 revenue, reported in June, was $934 million, up 15 per cent year-on-year. Services revenue also grew 17 %.

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With Red Hat, IBM has acquired one of the most important software companies in the IT industry. "The platform we are talking about has to run on other people's clouds too", Rometty said.

But IBM CEO Ginni Rometty is going all-in on a hybrid cloud - combining plain cloud computing - i.e., putting all your data on somebody else's servers - and keeping some what's essential to the business in-house. In that model, there could be situation where IBM and its Red Hat subsidiary could be competing with other, though Krishna referred to the situation as being - coopetition.

The company, which won approval for the purchase from USA regulators in May and European Union regulators in late June, agreed to pay $190 a share for Red Hat, representing a 63 percent premium.

IBM and Red Hat have deep open source values and experience.

"We fundamentally believe that open source is a way to bring innovation to the market", said Krishna. Today, Linux is the most used platform for development.

Red Hat has inked sales deals with IBM competitors including Amazon Web Services (AWS), Microsoft Azure, Google Cloud and Alibaba.



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