IBM acquires Red Hat in $34bn hybrid cloud push

IBM has agreed to acquire enterprise open source software giant Red Hat for $34bn to bolster its hybrid cloud proposition.

News of the deal emerged over the weekend, before being confirmed on Sunday 28 October 2018 in a joint statement from IBM and Red Hat’s senior leadership teams.

In it, IBM CEO, chairman and president, Ginni Rometty, said the acquisition sets up both parties to take advantage of the opportunities that still exist to help enterprise make the move from on-premise systems to the cloud.

“Most companies today are only 20% along their cloud journey, renting compute power to cut costs,” she said. “The next 80% is about unlocking real business value and driving growth. This is the next chapter of cloud.”

“It requires shifting business applications to hybrid cloud, extracting more data and optimising every part of the business, from supply chains to sales.”

According to IBM, the fact 80% of enterprise workloads are yet to move to the cloud is because of the difficulties companies face when trying to migrate applications between providers who make up the “proprietary” cloud market.

Therefore, by teaming up with Red Hat, it is claimed both parties will be better positioned to help enterprises move more of their applications and workloads off-premise. “The acquisition of Red Hat is a game-changer. It changes everything about the cloud market,” said Rometty.

The two companies claim to have been working together for 20 years, with IBM citing its early support for Linux, and how this paved the way for further collaboration with Red Hat over making the open source software enterprise-ready.

“These innovations have become core technologies within IBM’s $19bn hybrid cloud business. Between them, IBM and Red Hat have contributed more to the open source community than any other organisation,” the joint statement said.

Once the deal completes, which is expected to be in the latter half of 2019, Red Hat will be incorporated into IBM’s hybrid cloud business unit, where it will continue to operate as a standalone division.

This in turn will, according to the Jim Whitehurst, president and CEO of Red Hat, provide the organisation with the resources it needs to scale-up its business further while retaining its ability to champion causes of its own within the open source space.

As such, Whitehurst will stay on to lead Red Hat, as well as being inducted into the IBM senior management team, reporting directly to Rometty.

“Joining forces with IBM will provide us with a greater level of scale, resources and capabilities to accelerate the impact of open source as the basis for digital transformation and bring Red Hat to an even wider audience – all while preserving our unique culture and unwavering commitment to open source innovation,” he said.