IBM to gobble Red Hat for $34bn - yes, the enterprise Linux biz

IBM is reportedly nearing a deal to acquire Red Hat, the software company valued at $20 billion

USA tech giant IBM has agreed to a deal with Red Hat, an open source cloud software provider, to purchase it for $34 billion, making the 107-year-old United States firm the world's biggest hybrid cloud provider.

The Red Hat deal is IBM's biggest acquisition yet for a reason: The stakes are too high and IBM has already been bumped out of the big cloud conversation by Amazon Web Services, Google Cloud Platform and Microsoft Azure. "It changes everything about the cloud market", said Ginni Rometty, IBM's chairman and chief executive officer, in the statement.

IBM intends to acquire enterprise Linux maker Red Hat for $34bn (£27bn). The question is how IBM's might and largesse in the digital world will influence the open source OS. And now, one of the biggest enterprise technology companies on the planet has agreed to partner with us to scale and accelerate our efforts, bringing open source innovation to an even greater swath of the enterprise. However, companies that are deploying workloads on public cloud providers tend to prefer Ubuntu Linux for that work, and that coupled with acceleration toward the cloud in general has stalled revenue growth in that category. It recently surprised investors with quarterly earnings that showed a decline in revenue after several straight quarters of modest growth.

IBM, which has a market valuation of $114 billion, has seen revenue decline by nearly a quarter since Rometty took the CEO role in 2012. "Imagine Red Hat with greater resources to grow into the opportunity ahead of us", Whitehurst told employees in an email Sunday afternoon. "IBM is committed to being an authentic multi-cloud provider, and we will prioritize the use of Red Hat technology across multiple clouds", Arvind Krishna, senior vice president of IBM Hybrid Cloud, said in a statement.

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Red Hat has over 12,000 workers worldwide. Between them, IBM and Red Hat have contributed more to the open source community than any other organisation. Since the day we made a decision to bring open source to the enterprise, our mission has remained unchanged. Subscription revenue from that category increased 31 percent to $196 million during Red Hat's second fiscal quarter, compared to an eight-percent increase in revenue from infrastructure software. "Together we can become the leading hybrid cloud solutions provider". Red Hat will become part of IBM's hybrid cloud team as a "distinct unit", with the same headquarters in Raleigh, North Carolina, and its brands.

The two companies said the deal, approved by their respective boards, is subject to Red Hat shareholder and regulatory approval and should be completed in the latter half of 2019.

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

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