Mergers and Acquisitions, Enterprise, Content, Software defined, Storage

IBM Acquires Red Hat for Hybrid Cloud Software Push

IBM is acquiring Red Hat, the Linux software provider, in a $34 billion deal, the companies confirmed today. The deal could unlock multiple hybrid cloud software benefits for IBM, which is striving to compete more effectively against Amazon Web Service (AWS) and Microsoft Azure.

IBM Cloud has been growing but the company's overall revenues sank to $18.8 billion in Q3 2018 -- down from $19.2 billion in Q3 2017. The results raised fresh questions about CEO Ginni Rometty's multi-year turnaround strategy for the company.

Red Hat, meanwhile, has recently faced slower-than-expected growth. The company's revenue for Q2 fiscal 2019 was $823 million, up 14 percent year-over-year, according to results disclosed in September 2018. The revenue figure was about $7 million short of Wall Street's expectations.

Related: Will Alternative Red Hat Bidders Emerge?

Among the ways Red Hat could help IBM:

  • Red Hat Enterprise Linux (RHEL) is one of the most popular operating systems for running public, private and hybrid cloud workloads.
  • The company's open source software portfolio also includes JBoss middleware, virtualization and storage products that compete with VMware, among other key rivals.
  • The overall business has deep relationships with thousands of ISVs worldwide -- a key requirement for public cloud success.

An IBM-Red Hat deal could also trigger acquisition or alliance interest in additional Linux software providers like Canonical Ubuntu and SUSE Linux, ChannelE2E believes. The major public clouds typically support each of those major Linux distributions, but Red Hat has a particularly strong reputation with CIOs.

IBM: Mixed M&A Record

IBM's track record with acquisitions is mixed. Recent deals involving artificial intelligence technology for IBM Watson ultimately led to some recent layoffs, and the company's overall cognitive computing revenues fell 6 percent in the most recent quarter.

Also, it's unclear how the open source community will react once the technology giant gains control of the major Linux distribution.

Joe Panettieri

Joe Panettieri is co-founder & editorial director of MSSP Alert and ChannelE2E, the two leading news & analysis sites for managed service providers in the cybersecurity market.