Briefing

IBM acquires Red Hat for US$34 billion in bid to catch up to Amazon and Microsoft in cloud

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Red Hat will join IBM’s hybrid cloud division, but will retain its independence and focus on open source. Red Hat’s management team will remain in place, with CEO Jim Whitehurst reporting to IBM CEO Ginni Rometty. (The Logic)

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Talking point: IBM’s cloud revenue is up from four per cent in 2013 to 25 per cent. However, the firm has a fraction of the global market. In 2018, first-place Amazon had 31.7 per cent of the global cloud market, while fifth-place IBM had just 3.6 per cent. The company was in fourth place in 2017, but has now fallen behind Alibaba. The Red Hat acquisition is designed to reverse that trend. IBM expects it to add about two points of compound annual revenue growth over a five-year period. Hitting that target will partially depend on IBM being able to grow Red Hat’s revenues without alienating its current customers, many of whom use other cloud service providers, including Amazon and Microsoft, integrated with Red Hat’s services. For now, IBM is heavily emphasizing its desire to leverage Red Hat’s connections in the open source community to scale, with a focus on the hybrid cloud.