Published: Wed, July 10, 2019
Markets | By Otis Pena

IBM Moves Into Cloud Business With $34 Billion Acquisition

IBM Moves Into Cloud Business With $34 Billion Acquisition

"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", Rometty said. "When we started on this journey of Linux many years ago", he said, "of making Linux the ubiquitous platform out there and then, further on down the line, really building our portfolio around that to build a truly hybrid cloud product portfolio, our goal had always been to make that the ubiquitous set of technologies and platforms across the enterprise", said. And they need partners they can trust to manage and secure these systems.

IBM mostly missed the public-cloud revolution under Rometty's predecessor, Sam Palmisano, who dismissed Amazon's strategy of spending heavily on massive data centers to handle other companies' computing tasks. IBM's acquisition of Red Hat is mainly aimed at bolstering the company's cloud business. Red Hat CEO Jim Whitehurst and the wider leadership team "are all staying with us for a good long time", Rometty said. Previously, the company has made it clear that Red Hat will operate as a distinct unit within IBM's Hybrid Cloud team.

IBM's acquisition of software provider Red Hat has reportedly now been finalized. The companies touted the merger in a statement.

IBM's cloud revenue is now 25 per cent of its total revenues.

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The key driver of this acquisition is IBM's big bet on the cloud. IBM said its cloud revenue grew from 4 percent of total revenue in 2013 to 25 percent in 2018.

IBM's $34 billion purchase of Red Hat has officially closed, the two companies announced Tuesday. Currently, it is behind leaders in the space, Microsoft (NASDAQ:MSFT) and Amazon (NASDAQ:AMZN). IBM's offerings have evolved to reflect new customer needs and drive greater growth. The Red Hat acquisition is created to reverse that trend. It's important, he added, for IBM to remain neutral to protect the ecosystem of developers it has created and to maintain relationships with customers.

"From a strategic point of view, we think the acquisition will position IBM as a formidable player in the hybrid IT market", Evercore ISI analyst Amit Daryanani wrote in a note to investors Tuesday. "We believe that hybrid cloud unlocks tremendous value and is the only way forward for our clients". Krishan noted that IBM doesn't have its own Linux distribution and it doesn't have a configuration management tool, like Red Hat Ansible either. The two companies have worked together for more than 20 years to make open source the default choice for modern IT solutions.

With Red Hat, IBM has acquired one of the most important software companies in the IT industry. Red Hat only came into existence in 1993 and has always focused on the decidedly un-corporate open-source software community. By 2023, an additional 640,000 people are expected to work in Red Hat-related jobs.

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