IBM, the tech giant company, has finally sealed a deal with Red Hat. IBM acquired Red Hat for $34 billion and marked as the second biggest technology deal in the world ever made by any firm in the history. The deal will eventually set IBM-US based company on the right path to fight with leading software providers in the cloud business.
IBM is a 108-year-old company. IBM stands for International Business Machines; the company was once identical with mainframe computing, has been facing problems to use cloud technologies and is attempting to provide computing and other software products and services across the internet meanwhile catching up to its competitors like Microsoft and Amazon Inc.
IBM’s CEO Ginni Rometty has risked her legacy over the deal developed to protect the tech company from irrelevancy. It is considered as a big movement.
During an interview Rometty mentioned, the deal is regarding hybrid cloud and it is the future technology, it is the final aim of the cloud. This market is worth of trillion dollars, is developing and it’s very much appealing to me that the news you listen to everyone is speaking of it too.
IBM revealed about the deal in October and on Tuesday the company mentioned in a statement that IBM provided $190 for each share of Red Hat in cash. The overall equity is valued at $34 billion.
IBM already lack in the public cloud and it is playing big on hybrid cloud, which enables firms to execute programs in parallel on their internal servers and also on large public cloud suppliers such as Amazon Web Services and Azure of Microsoft. IBM is positioning itself as a collaborator for these companies instead of a competitor.
IBM’s Cloud Revenue
IBM has noticed declining revenue for nearly 6 years from the last 7 years and this new hybrid cloud method might help IBM to increase its growth, Anurag Rana, Bloomberg Intelligence analyst mentioned.
Currently, cloud revenue of IBM has increased by 25 percent of overall revenue. In 2013 the cloud revenue accounted for 4 percent, New York-based firm, Armonk stated. Within 12 months through Q1 of 2019, cloud revenue of IBM soar over $19 billion. The acquisition of IBM will add compound annual revenue growth’s two points to IBM for 5 years, the company stated.
IBM shares were slightly altered at $139.90 in New York. The company achieved around 12 percent from the time they announced about Red Hat deal.
Concerns over acquisition
The acquisition deal was noticed as an acceptance that the existing cloud strategy of IBM was not functioning. Few experts questions if Red Hat will safeguard it. However, it is believed that Red Hat will increase profit margins of IBM and will lead IBM ahead into the hybrid cloud business. Meanwhile, the acquisition deal will not make IBM a significant player within the public cloud.
Open hybrid cloud technologies of Red Hat will be paired with sales team, industry analyst of IBM across more than 175 nations, IBM mentioned. Both the groups will able to develop a ‘next-generation hybrid multi-cloud platform,’ that relies on open source technologies, for example, Linus and Kubernetes. The new hybrid platform will enable tech companies to deploy and control their applications and data over on-site, on private and numerous public clouds.
Amit Daryanani, Evercore ISI expert in a statement informed investor on Tuesday,
“From a strategic point of view, we think the acquisition will position IBM as a formidable player in the hybrid IT market.”