Shulou(Shulou.com)06/02 Report--

Abstract: today, the news that IBM will buy open source software company Red Hat (Red Hat) for $34 billion has swept the WeChat moments.

IBM will pay Red Hat $190 a share, a 63% premium to Red Hat's closing price of $116.68 on Friday. It is not hard to see how eager it is to change the status quo in IBM, which is struggling to grow and has a vague strategy.

At present, the boards of directors of the two companies have approved the deal, but it still needs approval from shareholders and regulators, and if all goes well, the acquisition is expected to be completed in the second half of 2019. The acquisition is IBM's largest deal to date and the third largest in US technology history.

It is understood that after the acquisition, Red Hat will become a division under the IBM hybrid cloud, and Red Hat CEO Jim Whitehurst (Jim Whitehurst) will report to IBM CEO Rometty (Ginni Rometty).

Analysis of the reasons for acquisition

The reason for the acquisition, in fact, is not difficult to analyze, it is IBM's efforts to seek new growth, aimed at supporting IBM's struggling cloud business.

IBM has a market capitalization of $114 billion, and IBM revenue has fallen nearly 1/4 since Rometty took over as CEO in 2012. Although some of this comes from divestitures, most of it comes from declining sales of existing hardware, software and service products. In the most recent quarter, revenue fell another 2.1%, and share prices fell 19% in the past year.

In Gartner's recently released 2018 Magic Quadrant of Global Cloud Infrastructure as a Service (IaaS), IBM has also been disappointing and has been excluded from the leader quadrant, far behind AWS (AMZN), Microsoft Azure and Google Cloud.

In contrast, Amazon's AWS revenue rose 46% to $6.68 billion, although that was slightly lower than some analysts had expected.

Microsoft, in second place, did not specify its cloud revenue, but its Azure cloud computing business revenue grew by 76%. Although the growth rate has slowed down, it is still very high.

Google's revenue and hardware grew 29% in the third quarter to $4.6 billion.

Can IBM get out of trouble?

"the acquisition of Red Hat is a game-changer. It changes everything about the cloud market," says IBM CEO Rometty (Ginni Rometty). "IBM will be the number one hybrid cloud provider in the world, providing enterprises with the only open cloud solution."

There is no denying that Red Hat is an important company, especially in cloud computing and Linux ecosystem. The marriage of IBM and Red Hat can make up for each other's shortcomings and help to expand the cloud computing business.

For IBM, for example, Red Hat's Linux and other software assets represent an opportunity to sell products to enterprise software developers who are building complex applications that can run on cloud computing platforms such as AWS and Azure, as well as internal data centers.

But how effective will the acquisition be? "it is not clear what value the marriage of IBM and RedHat will bring to the market," said Patrick Moorhead, head of Moor Insights&Strategy, a market research firm. "both RedHat and IBM have jointly participated in the enterprise private cloud market. This will probably not affect IBM's position in the public cloud, because IBM has its own business in the public cloud, but it is far less than the private cloud."

Although Red Hat CEO expressed its excitement about the acquisition to all Red Hat employees via email, Red Hat employees were generally scared and worried about it.

Can the acquired Red Riding Hood still be the Red Riding Hood of the past? Many Red Hat employees worry that this is impossible. The first to bear the brunt is the culture clash. Although IBM has a good reputation for supporting open source, in recent years, IBM has been seen as an anachronistic company and mired in red tape and bureaucracy, contrary to Red Hat's open-ended organizational management style.

Dan Woods, a contributor to the Forbes magazine website, said in his commentary that both IBM and RedHat stressed in their press releases that they would adopt a hybrid cloud model. It is difficult to tell whether this technology is sustainable enough or just a transitional technology that will eventually be completely outsourced to external manufacturers.

It is hard to say whether IBM's acquisition of Red Hat will get Big Blue out of trouble. It all depends on whether IBM's hybrid cloud strategy can show strong revenue growth after the acquisition.

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