IBM Acquires Red Hat

Oct 31, 2018

IBM is acquiring Red Hat, the most successful open source company.

In a surprise move, IBM has announced that it is acquiring Red Hat for $34 billion. A primary reason for the purchase is to support IBM's hybrid cloud and Kubernetes business. IBM is a distant 4th player in the public cloud space, behind AWS, Azure, and Google Compute Engine.

Red Hat’s primary bread winner is still Linux, but the Linux business has kind of reached a saturation point. The real year-on-year growth is coming from the emerging business, which is the cloud.

Red Hat doesn’t have any public cloud offerings; its strength is Kubernetes-based OpenShift, which enables customers to embark on their hybrid cloud journey. However, Red Hat can grow only so much as customers move to public cloud configurations. Red Hat can’t scale to address the growing market, and it is limited in how much it can invest in other hot emerging technologies like Machine Learning and IoT. “We can only do so much,” Red Hat President and CEO Jim Whitehurst told me in a previous interview.

"Joining forces with IBM will provide us with a greater level of scale, resources, and capabilities to accelerate the impact of open source as the basis for digital transformation and bring Red Hat to an even wider audience – all while preserving our unique culture and unwavering commitment to open source innovation,” said Whitehurst.

IBM said that joining with Red Hat will help them help clients create cloud-native business applications faster, drive greater portability and security of data and applications across multiple public and private clouds, and provide consistent cloud management.

To achieve this, the two companies will leverage key open source technologies such as Linux, containers, Kubernetes, multi-cloud management, cloud management, and automation.

"The acquisition of Red Hat is a game-changer. It changes everything about the cloud market," said Ginni Rometty, IBM Chairman, President and Chief Executive Officer. "IBM will become the world's #1 hybrid cloud provider, offering companies the only open cloud solution that will unlock the full value of the cloud for their businesses.

Although the cloud is at the heart of this acquisition, the change won't affect the work Red Hat does in the Linux and open source space. In fact, IBM itself is among the top 10 contributors to the Linux kernel. During a conference call, IBM and Red Hat told me that there won’t be any impact on open source projects maintained by Red Hat, including Gnome, Fedora, CentOS, and others.

Red Hat will continue to run as an independent entity under the leadership of Whitehurst, within the Hybrid Cloud business of IBM.

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