The world’s second-largest technology deal was sealed by IBM, which purchased Red Hat for US$34 billion. This deal has set up the iconic US technology company on a path to try to compete with top software tellers in the cloud.
IBM is 108-year-old, which was once synonymous with mainframe computing, has been struggling to implement cloud-related technologies and is trying to catch up to market leaders Amazon.com and Microsoft in offering computing and other software and services over the internet.
It is an outlining moment for CEO Ginni Rometty, who has staked her legacy on the deal designed to save the company from irrelevancy.
Rometty in an interview said, “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.”
The deal increased the revenue to more than $19-billion
The deal was announced in October. According to the company statement, IBM paid $190 per share for Red Hat in cash, for a total value of about $34 billion. A New York-based company said that after the deal, IBM’s cloud revenue has grown 25% of total revenue now, from 4% in 2013. In 12 months through to the first quarter of this year, IBM cloud revenue grew to more than $19 billion. The Red Hat achievement is expected to contribute about two points of compound annual revenue growth to IBM over five years, according to the company.
Deal creating new platform turning rivals into partners
Rometty tried to break in the market with the $2 billion acquirements of SoftLayer Technologies in 2013, but by then Amazon, Google, and Microsoft already had a head start. With IBM’s new hybrid cloud strategy, Rometty said the company now views Amazon, Microsoft, and Google as partners rather than rivals. “The platform we are talking about has to run on other people’s clouds, too. This is not a winner takes all market,” said Rometty.