April 16, 2021

IBM may be the 'Switzerland of the cloud' with Red Hat | Companies

IBM may be the 'Switzerland of the cloud' with Red Hat | Companies

IBM has decided to take the bull by the horns before the need he had to diversify his business of hardware and consulting, and especially not to be left behind in the cloud business, and this Sunday he announced that he buys Red Hat for 34,000 million dollars, the largest acquisition in its history and also the third largest purchase in the history of technology in the US, excluding the merger of AOL-Time Warner.

With this transaction, the president and CEO of IBM, Ginni Rometty, makes clear the strong commitment of the blue giant for the cloud computing market, which today moves 15,000 million dollars, with a growth of 51%. "The acquisition of Red Hat is a game changer. [La operación] changes everything about the cloud market, "the board said.

We will have to see it, but the bet is important. A brilliant move on paper if it wants to catch up with Amazon and Microsoft, which have advanced in recent years in the business of providing computing power and software under the pay-per-use model. And also to stop Google and Alibaba, who are stepping on this very ground. According to Gartner, Amazon leads the global infrastructure business in the cloud with 51.8% market share; IBM barely has 1.9%.

As he holds Enrique Dans, professor of Information Technology at IE Business School, the purchase of Red Hat makes all the sense in the world for IBM, because it responds consistently to its strategy of abandoning hardware and focusing on value-added services for companies, services that allow you to charge regular fees. "Red Hat is a company that not only does this very well, but also is a symbol in the world of open source, the solid foundation of the systems of more and more companies," says this expert. "Red Hat's specialization in hybrid clouds, its total interoperability guarantee and the possibility of giving it much more scope thanks to IBM's marketing operations make an operation like this very meaningful," he insists.

The operation is scheduled to close in the second half of 2019 and, if all the stars are aligned, the resulting company has many ballots to become a major competitor in the field of corporate cloud computing, in which many companies show misgivings about other major competitors such as those already mentioned, "because they are supported in many cases", as Dans points out, "in pieces of software and proprietary services that become obstacles when migrating the data, and act as a form of captivity. Some say that an operation like this makes IBM "the cloud Switzerland", in the best neutral offer, capable of integrating with anything, including those competitors. "

The operation responds to its strategy of abandoning hardware and focusing on value-added services for companies that allow it to charge regular fees

At this point, however, it is important to remember that Amazon For example, today leader in hybrid clouds, is working with VMware, which also works with everyone else, according to the analyst recalls Jaime García Cantero, which believes that IBM will be strong in the large companies segment, "although it will not be easy to reach its rivals who are currently taking advantage of it".

The purchase of Red Hat is part of the efforts that IBM has been making for a long time to revive a technological giant with 107 years of history (it has also opted for artificial intelligence and analytical tools).

IBM and Red Hat have been collaborating for years with their well-known corporate cultures, something that should help make their merger a success. We must remember that free software is not a novelty for IBM, because if the company of the red hat is the second company in contributions to Linux, the blue giant is the fourth.

"Between the two, they have contributed more to Linux with money and with hours of development that no other company in the world. So it's not that IBM discovers free software, but that it is reoriented to return to its core, software and corporate services, instead of obsessing with billing hours of consulting and with an artificial intelligence program that, despite the marketing demonstrations, he never became able to position as a leader given the speed and dynamism with which that area moves, "says Dans.

And the price? Is the operation too expensive for IBM, which will pay $ 190 for each Red Hat title, a 63% bonus on Friday's closing price? The prices in this type of operations are never excessive or cheap, it depends on the roadmap that comes later. "If IBM is able to leverage itself in Red Hat's less traditional management, it is able to supplement the company's offer with its marketing machinery and strengthen its position for the corporate software market, the price will have been very well paid and there will be no nobody to discuss it. If Red Hat dilutes within IBM and loses some of its essence while IBM tries to invoice consulting hours in the resulting integration projects, it will have been an absurd investment. "

For García Cantero, the acquisition is expensive, but there were not many more options in the market "so this purchase was the only way for IBM to become strong in the management of hybrid cloud services and not be left behind by the leaders". What seems clear is that the transition of companies to free software and to the cloud is not finished yet (as evidenced by the recent purchase of GitHub by Microsoft for 7,500 million dollars), that there are still many companies to carry it out, and that IBM can now try to take a significant part of that market.

Some information to keep in mind …

  1. IBM plans to use cash and debt to carry out the acquisition of Red Hat. At the end of the third quarter, IBM had $ 14.7 billion in cash.
  2. The blue giant intends to suspend its share repurchase program in 2020 and 2021 to help pay for the operation.
  3. IBM argues that the purchase will mean an increase in cash flow and gross margins within 12 months, "accelerating revenue growth and driving a solid and growing dividend."
  4. Moody's has revised IBM's A1 rating because the acquisition will force it to raise its leverage "substantially, the rating agency believes the Red Hat purchase" breaks with IBM's philosophy of making small purchases with risks limited. "I had previously bought others such as Lotus, Cognos, Rational and Informix.
  5. Red Hat, founded in 1993, reported $ 2.9 billion in revenue in its last fiscal year completed last February. Analysts expect IBM to post $ 79.75 billion in revenue and adjusted earnings of $ 13.80 per share, according to S & P Global Market Intelligence. In 2011, the company obtained revenues of 106,920 million and earnings per share of 13,44 dollars per share.
  6. IBM, founded in 1911, plans to retain all Red Hat employees, about 12,600. The blue giant currently has a workforce of 370,000 employees.
  7. Red Hat, based in Raleigh, North Carolina, will operate as an independent unit within the IBM Public Cloud team. Red Hat, which will continue to be led by its current CEO Jim Whitehurst, provides IBM with a star operating system, Red Hat Enterprise Linux, and a new product called Opel Shift, key in the cloud environment.
  8. In Spain, IBM turnover in the last year 1,890 million euros, 5% more than in 2016. The subsidiary, chaired by Marta Martínez, employs about 7,000 workers. For its part, Red Hat, captained in Spain by Julia Bernal, employs about 140 people. In 2017, the firm exceeded the 22 million billing in the country, 8 million more than a year before, and obtained more than one million euros of profit.
  9. IBM shares fell 4%, although in the early stages of the session, they lost 5% on the US Stock Exchange.


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