IBM buys Linux giant Red Hat to thrive in the cloud

IBM is seen at the Mobile World Congress in Barcelona Spain

IBM is seen at the Mobile World Congress in Barcelona Spain

IBM is acquiring Red Hat, a famous distributor of open-source software for a reported bid of US$32 billion (~RM142 billion).

Ginni Rometty, IBM's chairman, president and CEO, says the acquisition would make IBM the world's No. 1 hybrid cloud provider - that's when companies use a mix of on-site, private and third-party public cloud services. "It changes everything about the cloud market", IBM CEO Ginni Rometty said in a statement. With the rise of proprietary cloud computing infrastructure and services, however, Red Hat itself might be feeling the pressure to find new sources of revenue.

"IBM's commitment to keeping the things that have made Red Hat successful - always thinking about the customer and the open source community first - make this a tremendous opportunity for not only Red Hat but also open source more broadly", Paul Cormier, Red Hat's president for products and technologies, said in a statement. Open-source software such as the Linux operating system, the web browser Firefox and big-data analysis software such as Apache Hadoop has gradually become the bedrock for many applications, even in large enterprises. It has more or less survived lately on the server business but the rise of the cloud and cloud providers has seen its name overshadowed and nearly forgotten. Companies today are already using multiple clouds. IBM, meanwhile, has watched its revenue decline in recent years. Red Hat will still be helmed by Jim Whitehurst and Red Hat's current management team. As Bloomberg reports, revenue at Red Hat is expected to top $3 billion this year, but its sales missed analyst expectations last quarter.

Red Hat has been in business since 1993 and has expanded its offerings from Linux to a number of open source middleware products. Red Hat's share price was 28 percent down over the past six months. I'm sure I am not alone is fearing that IBM could ultimately ruin Red Hat and its offerings.

One of IBM's main competitors, Dell Technologies Inc, made a big bet on software and cloud computing two years ago, when it acquired data storage company EMC for $67 billion.

Anticipating concerns that the acquisition would endanger Red Hat's appeal as an agnostic provider of open-source software, IBM said it will "remain committed to Red Hat's open governance, open source contributions, participation in the open source community and development model, and fostering its widespread developer ecosystem". It intends to maintain Red Hat's headquarters, facilities, brands and practices.

In its early days, the company enjoyed the advantage of being used extensively by the United States military as the Department of Defence has certified its Red Hat Enterprise Linux product for use.

And the complication? The deal is being pitched as making IBM and Red Hat the premier hybrid cloud company.

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