Red hat and IBM has joined force
July 2019 by Pierre Kouliche
IBM and Red Hat announced today that they have closed the transaction under which IBM acquired all of the issued and outstanding common shares of Red Hat for $190.00 per share in cash, representing a total equity value of approximately $34 billion.
Acquisition positions IBM as the leading hybrid cloud provider and accelerates IBM’s high-value business model, extending Red Hat’s open source innovation to a broader range of clients
IBM preserves Red Hat’s independence and neutrality; Red Hat will strengthen its existing partnerships to give customers freedom, choice and flexibility
Red Hat’s unwavering commitment to open source remains unchanged
Together, IBM and Red Hat will deliver next-generation hybrid multicloud platform
The acquisition redefines the cloud market for business. Red Hat’s open hybrid cloud technologies are now paired with the unmatched scale and depth of IBM’s innovation and industry expertise, and sales leadership in more than 175 countries. Together, IBM and Red Hat will accelerate innovation by offering a next-generation hybrid multicloud platform. Based on open source technologies, such as Linux and Kubernetes, the platform will allow businesses to securely deploy, run and manage data and applications on-premises and on private and multiple public clouds.
Red Hat will continue to be led by Jim Whitehurst and its current management team. Whitehurst is joining IBM’s senior management team, reporting to Ginni Rometty. IBM will maintain Red Hat’s headquarters in Raleigh, North Carolina, its facilities, brands and practices. Red Hat will operate as a distinct unit within IBM and will be reported as part of IBM’s Cloud and Cognitive Software segment.
Both companies have already built leading enterprise cloud businesses with consistent strong revenue growth by helping customers transition their business models to the cloud.
IBM’s cloud revenue has grown from 4 percent of total revenue in 2013 to 25 percent today. This growth comes through a comprehensive range of as-a-service offerings and software, services and hardware that enable IBM to advise, build, move and manage cloud solutions across public, private and on-premises environments for customers. IBM cloud revenue for the 12-month period through the first quarter of this year grew to over $19 billion. The Red Hat acquisition is expected to contribute approximately two points of compound annual revenue growth to IBM over a five-year period.
Red Hat’s fiscal year 2019 revenue was $3.4 billion, up 15 percent year-over-year. Fiscal first quarter 2020 revenue, reported in June, was $934 million, up 15 percent year-over-year. In that quarter, subscription revenue was up 15 percent year-over-year, including revenue from application development-related and other emerging technology offerings up 24 percent year-over-year. Services revenue also grew 17 percent.
The Hybrid Cloud Opportunity
Digital reinvention is at an inflection point as businesses enter the next chapter of their cloud journey. Most enterprises today are approximately 20 percent into their transition to the cloud. In this first chapter of their cloud journey, businesses made great strides in reducing costs, boosting productivity and revitalizing their customer-facing innovation programs. Chapter two, however, is about shifting mission-critical workloads to the cloud and optimizing everything from supply chains to core banking systems.
To succeed in the next chapter of the cloud, businesses need to manage their entire IT infrastructure, on and off-premises and across different clouds — private and public – in a way that is simple, consistent and integrated. Businesses are seeking one common environment they can build once and deploy in any one of the appropriate footprints to be faster and more agile. IBM’s offerings have evolved to reflect new customer needs and drive greater growth. The acquisition of Red Hat further strengthens IBM as the leader in hybrid cloud for the enterprise.
The collective ability of IBM and Red Hat to unlock the true value of hybrid cloud for businesses is already resonating among customers moving to the next chapter of digital reinvention.
IBM Reinforces Commitment to Open Source and Red Hat Neutrality
IBM and Red Hat have deep open source values and experience. The two companies have worked together for more than 20 years to make open source the default choice for modern IT solutions. This includes the importance of open governance and helping open source projects and communities flourish through continued contribution.
With Red Hat, IBM has acquired one of the most important software companies in the IT industry. Red Hat’s pioneering business model helped bring open source – including technologies like Linux, Kubernetes, Ansible, Java, Ceph and many more – into the mainstream for enterprises. Today, Linux is the most used platform for development. Red Hat Enterprise Linux alone is expected to contribute to more than $10 trillion worth of global business revenues in 2019. By 2023, an additional 640,000 people are expected to work in Red Hat-related jobs.
IBM has committed to scaling and accelerating open source and hybrid cloud for businesses across industries, as well as preserving the independence and neutrality of Red Hat’s open source heritage. This includes its open source community leadership, contributions and development model; product portfolio, services, and go-to-market strategy; robust developer and partner ecosystems, and unique culture.
Red Hat’s mission and unwavering commitment to open source will remain unchanged, and Red Hat will continue to offer the choice and flexibility inherent to open source and hybrid IT environments. Red Hat also will continue to build and expand its partnerships, including those with major cloud providers, such as Amazon Web Services, Microsoft Azure, Google Cloud and Alibaba.
IBM and Red Hat also share a strong commitment to social responsibility and a sense of purpose for applying technology and expertise to help address some of the world’s most significant societal challenges. Together, the two companies have committed to expanding this longstanding commitment through new joint initiatives, addressing education and skills, civic and societal needs and Science, Technology, Engineering, and Math (STEM) workforce development.