IBM made a big bet on the Red Hat acquisition

IBM has just completed the largest acquisition in more than 100 years in history by spending $ 34 billion to buy open-source software firm Red Hat.

Accordingly, IBM has acquired all of Red Hat's popular and marketed shares for $ 190 per share in cash, equivalent to a total equity of about $ 34 billion.

The deal has reshaped the cloud computing market for businesses. Red Hat's open hybrid cloud technologies will now be combined with IBM's unmatched size and depth of innovation and expertise in each economic sector, as well as its leading position in more than 175 countries.

In a July 9 joint statement, IBM and Red Hat said they would provide a new hybrid-cloud platform based on open source technologies. Accordingly, IBM and Red Hat will work together to accelerate innovation by providing the next generation of hybrid multicloud platform. Based on open source technologies such as Linux and Kubernetes, the platform will allow businesses to deploy, run and manage data and on-premises applications securely and on private cloud and multicloud.

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Red Hat will operate as a separate unit in IBM and will report business results to IBM. Both companies have built the leading cloud computing business for enterprises with strong revenue growth, by supporting customers to transform their business models into the cloud.

Since 2013, the revenue share of the cloud segment contributing to IBM's total revenue has increased by 6 times to 25%. IBM's cloud revenue over the 12-month period until the first quarter of this year has increased to more than $ 19 billion. The Red Hat acquisition is expected to contribute about two additional gross revenue growth points to IBM over a five-year period.

Red Hat's fiscal year 2019 revenue was $ 3.4 billion, up 15% from the previous year. Financial revenue in the first quarter of 2020, reported in June, was $ 934 million, up 15% from the previous year. In this quarter, its subscription revenue increased by 15% over the previous year, in which revenue from services related to application development and other emerging technologies increased by 24% over the previous year. Its service revenue also increased by 17%.

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IBM and Red Hat have deep open source values and experience. The two companies that have worked together for more than 20 years to turn open source into the default choice for modern IT solutions, including open governance and support of open source projects and communities through continuous 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 more - into the mainstream product line for businesses.

Amazon, Microsoft are sharing the dominance of the global cloud computing business. Google is in third place, but far from the two leading positions.

IBM entered the cloud computing business more slowly than its competitors. But once it owns Red Hat, IBM will have a leading provider of widely used software tools for writing cloud applications.

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According to experts, many businesses today do not want to be forced into one cloud service vendor. Therefore, they are using more than one provider, and also want to apply their own cloud technology within their data centers to increase security even though the cost is quite high.

The advent of hybrid clouds like those of IBM and Red Hat is expected to be the perfect choice and will likely break the three-legged footprint that Amazon, Microsoft, and Google are creating on this 200-billion market.

IBM has committed to expanding and accelerating open source and hybrid cloud for businesses in the economic sectors, as well as preserving the independence and neutrality of Red Hat's open source legacy.

Red Hat's ongoing mission and commitment to open source will not change and Red Hat will continue to provide choices and inherent flexibility for open and hybrid IT environments. Red Hat will also continue to build and expand current partnerships, including large cloud service providers, such as Amazon Web Services, Microsoft Azure, Google Cloud and Alibaba.

By: Iris Gere

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