Why IBM Acquired Red Hat?

IBM Red Hat Deal

$34 billion is the money to be spent by IBM to buy Red Hat (NYSE: RHT). Quite a big money from IBM which is not in the front row for the past five years in business. It’s quite a big deal in technology history.

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Let Us Now Talk About IBM

An American multination company, International Business Machines (NYSE: IBM) operates in 170 countries. It’s headquarters in Armonk, New York. They do business by manufacturing computer software, middleware, and hardware. Their Mainframe computer is very popular.

IBM is into the cloud, internet of things, mobile, Security data analytics, infrastructure etc. It has generated a revenue of 7913.9 crores USD till 2017.

Now Let Us See About Red Hat

A red hat is an American software Multi-National Company headquartered in Raleigh, North Carolina. They operate on Linux-open source operating system products.

They get their business done by product development, quality assurance, 24/7 customer support, training for the product. They also do consultancy services. Red hat develops products in operating system platforms, application, storage, middleware, and management.

Red hat has generated annual revenue of $3 billion till Feb 2018. It has acquired a lot of companies like coreOS, permabit, codenvy, 3scale, Ansible, Feedhenry etc.

We will see the benefits IBM gets by acquiring Red Hat.

Hybrid Cloud Business Model

Many cloud service providers are competing in this world. Amazon, Microsoft, Google, IBM are few examples. Red hat operates under Linux open source environment. Developers working in Linux environment use any public cloud. Now after this merger, they prefer the IBM cloud. Thus this Hybrid cloud model will bring in more revenue.

Speaking about hybrid cloud “this is about providing choice and making sure customers are not locked in “according to Red Hat’s CEO Jim Whitehurst, on a call.

IBM CEO Ginni Rometty said that buying Red Hat will help the company become the leader in the hybrid cloud market.

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Utilization Of Red Hat Employees And Products:

Now IBM can use the Red Hat employees all over the world to work closely with IBM products and vice-versa. Red Hat has a wide range of products like codenvy, manageIQ, JBoss etc which can be used by IBM employees for further development, more marketing, more business, more customer support, and service. This will surely increase the revenue of IBM.

Revenue Growth:

Red hat is a small company is growing faster than that of IBM. According to financial analyst, it will have 15% growth this year and more next year. So now Red hats revenue will boost IBM business.

IBM’s CEO Ginni Rometty said while announcing the acquisition “Part of the expansion should come from sales of Red Hat’s products to IBM’s bigger base of customers. IBM intends to put its products on Red Hat’s software stack”. So IBM will see 2% growth as per IBM which increases its earnings per share.

Now IBM can go ahead in cloud business by these benefits and thereby growing, this growth won’t take place all of a sudden. The results will pay-off once everything is set well and keep on executing. Today in the fast-moving technology world, this is a bold move by IBM to grow further.