Red Hat

IBM’s CEO Big Bet: Can Red Hat Deal Save Cloud Services Roads to Revenue?

IBM’s CEO Rometty acquired Red Hat Inc for $34 billion to turn around cloud computing services. This is IBM’s largest acquisition in over 100 years, according to Reuters.

IBM big bet is to turn around its higher profit margin in cloud and software services. IBM’s revenue and profits have been declined over the last five years, according to David Poppe.

It agreed to pay Red Hat $190 a share, or a high 63% premium over its value, as reported by Bloomberg media. IBM has had a number of missteps in the cloud computing execution over the last five years. It’s 4th place in cloud leadership behind Amazon AWS (1), Microsoft Azure (2), and Google Cloud (3). Oracle is quickly gaining revenue and is in 5th place for its turn around make every application a cloud everything services plan.

The CEO’s seven-year leadership has reshaped IBM to higher margin services such as cloud and software services, but it appeared to stumble out of the gate with its cloud computing services. This looks like CEO Rometty last big bet to turn around IBM under her leadership.

Does this acquisition make sense?

Both IBM and Red Hat have common tech synergies for open platforms and interoperability. Red Hat brings a plethora of go-to open source software and services, which can augment IBM’s cloud services. IBM can play cloud catch-up with the Red Hat suite for augmenting the hottest cloud services trend with multicloud computing. The goal for the new joint companies offers a “next -generation hybrid multicloud platform” per an IBM/Red Hat statement.

Are multicloud services the right revenue model now?

Hybrid multicloud platform is slightly misleading. In the beginning of cloud adoption, CIO private and public clouds quickly transformed to the hybrid cloud using one public and private cloud for an organization. From there, it simply morphs into multicloud with any combination of public and private clouds. This shift quickly took hold when most software services firms had to dump their proprietary application back-ends in cloud computing for survival after 2016. It’s now typical to see a combo of private and many public clouds with the new or refreshed augmented software services to be cloud-based and not care about many enterprise cloud services. This shift in multicloud services is where IBM adds value for most CIOs cloud integration playbooks using both IBM and Red Hat solutions. This partnership should driver higher revenue margins for IBM integration and more IBM cloud services.

After 2015 there was a race for older software and ERPs venders to refresh their product suite to cloud-based services. As this trend is in full force adoption, CIOs are rethinking their cloud strategies for integration and risk management plans.

After CIOs had jumped to key cloud services, they discovered three challenges:

  • Cloud services lock-in” for increasing budgets and costs not in their control
  • Single cloud provider services risk
  • Numerous software services now in cloud-based offerings for integration

Most of these challenges can be addressed with a robust multicloud services strategy and execution plan.

On IBM latest success, it landed a multi-billion, multi-year AT&T contract for a range of cloud, other technologies, and services that included Red Hat products without specific details according to Richard Walters.

Bottom Line

IBM requires a Red Hat open source software rainmaker to re-jump start its cloud services and revenue models. IBM is best at integrating cloud services, enterprise cloud augmentation, and risk mitigation for enterprise mission critical cloud services. IBM can augment and integrate its services using Red Hat with other cloud services for most CIO enterprise cloud strategies. On the other hand, Red Hat can still grow independently of IBM too. IBM should keep the Red Hat leadership team together without any IBM bureaucracy layers to impede it. IBM consulting services army deployed for an uplift revenue on every Red Hat solution. With that said, IBM’s CEO has a good shot to ring the revenue cloud bell as a winner.

Copyright @ 2019 HAWALD ADVISORY, LLC. DISCLAIMER: This article is my opinions without financial payments. I do not hold any stocks or affiliations with any of the mentioned organizations above. Image is by Steven Liao at pixabay.com.

Disclosure

The views and opinions in this analysis are my own and do not represent positions or opinions of The Analyst Syndicate. Read more on the Disclosure Policy.

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