IBM completes $34-billion acquisition of Red Hat

For IBM, the acquisition of Red Hat, the world's leading provider of enterprise open source software solutions, is a landmark that positions IBM as the leading `Hybrid Cloud’ provider and bring Red Hat's open source innovation to clients across 175 countries where IBM operates.

“Red Hat's open hybrid cloud technologies are now paired with the unmatched scale and depth of IBM's innovation and industry expertise, and sales leadership in more than 175 countries,” IBM stated in a release. 

IBM said it would preserve Red Hat's independence and neutrality, allowing it to strengthen existing partnerships to give customers freedom, choice and flexibility, even as the two work together on the next generation cloud technologies.

“Together, IBM and Red Hat will accelerate innovation by offering a next-generation hybrid multicloud platform,” it added. 

IBM said the use of open source technologies, such as Linux and Kubernetes, the platform will allow businesses to securely deploy, run and manage data and applications on-premises and on private and multiple public clouds.

"Businesses are starting the next chapter of their digital reinventions, modernizing infrastructure and moving mission-critical workloads across private clouds and multiple clouds from multiple vendors," said Ginni Rometty, IBM chairman, president and CEO. "They need open, flexible technology to manage these hybrid multicloud environments. And they need partners they can trust to manage and secure these systems. IBM and Red Hat are uniquely suited to meet these needs. As the leading hybrid cloud provider, we will help clients forge the technology foundations of their business for decades to come," he added.

"When we talk to customers, their challenges are clear: They need to move faster and differentiate through technology. They want to build more collaborative cultures, and they need solutions that give them the flexibility to build and deploy any app or workload, anywhere," said Jim Whitehurst, president and CEO, Red Hat. "We think open source has become the de facto standard in technology because it enables these solutions. Joining forces with IBM gives Red Hat the opportunity to bring more open source innovation to an even broader range of organizations and will enable us to scale to meet the need for hybrid cloud solutions that deliver true choice and agility."

Red Hat will continue to be led by Jim Whitehurst and its current management team. Whitehurst is joining IBM's senior management team, reporting to Ginni Rometty. IBM will maintain Red Hat's headquarters in Raleigh, North Carolina, its facilities, brands and practices. Red Hat will operate as a distinct unit within IBM and will be reported as part of IBM's Cloud and Cognitive Software segment.

Both companies have already built leading enterprise cloud businesses with consistent strong revenue growth by helping customers transition their business models to the cloud.

IBM's cloud revenue has grown from 4 per cent of total revenue in 2013 to 25 per cent today. This growth comes through a comprehensive range of as-a-service offerings and software, services and hardware that enable IBM to advise, build, move and manage cloud solutions across public, private and on-premises environments for customers. 

IBM cloud revenue for the 12-month period through the first quarter of this year grew to over $19 billion. The Red Hat acquisition is expected to contribute approximately two points of compound annual revenue growth to IBM over a five-year period.

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. In that quarter, subscription revenue was up 15 per cent year-on-year, including revenue from application development-related and other emerging technology offerings up 24 per cent year-over-year. Services revenue also grew 17 per cent.