IBM purchases Red Hat for a whooping $34 billion

IBM, the international technology company, has purchased Red Hat, an American cloud software company, in a landmark tech deal valued at $34 billion — making it the second largest deal in tech history. Taking first place is Dell acquiring EMC Data Storage at $67 billion. 

IBM CEO, Ginni Rommety says, “This is about hybrid cloud — it is the future, it is the destination of the cloud. This market is a trillion dollars, it’s emerging and it’s very interesting to me that since our announcement now you hear everybody else talking about it, too.”

According to an article by TechCentral, IBM ‘paid $190/share for Red Hat in cash, for a total equity value of about $34-billion. IBM’s cloud revenue has spiked to 25 per cent of total revenue now, from 4 per cent in 2013 — amassing more than $19 billion. And the acquisition of Red Hat is expected to contribute around two points in annual compound revenue growth’.

Bloomberg report says the deal was seen as an acknowledgement that IBM’s current cloud strategy isn’t working. Some analysts doubt even Red Hat will save it.

Red Hat will improve IBM’s profit margins, and get the company further into an emerging part of the business known as hybrid cloud. But the deal may not make IBM a dominant player in the public cloud”. 

Intelligence analyst at Bloomberg, Anurag Rana says what stood out was how IBM would be working closely to its main rivals, Amazon, Microsoft, Google and Alibaba.

This shows a mature way of thinking about the competitive landscape, and if IBM remains true to this philosophy, it should show an improvement in growth down the road.

Rommety commended IBM’s new hybrid cloud strategy for viewing Amazon, Microsoft and Google as partners rather than rivals. She adds, “the platform we are talking about has to run on other people’s clouds too. This is not a winner takes all market.”

Source: Itnewsafrica.com