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IBM completed the $ 34 billion acquisition of Red Hat and committed to preserving the independence of its new unit, delivering innovative hybrid cloud stacks and growing. Now, all that IBM CEO Ginni Rometty must do is that the Red Hat purchase will define his mandate.
For customers in both companies, the next important step will be defining the road map for hybrid cloud integrations that can compete with VMware in organizations. In addition, IBM is committed to maintaining the neutrality of Red Hat, to focus on open source and to be led by current director and CEO, Jim Whitehurst.
What IBM is trying to do is use its scale to boost Red Hat's growth and strengthen its own cloud unit. The platform of Red Hat will become instantly global.
According to Rometty, IBM and Red Hat are well positioned for the next phase of the cloud, which will include multiple vendors, clouds and systems. Whitehurst, who will report to Rometty, said Red Hat will have a stature to make open source technology a de facto enterprise standard.
Here are the key things to watch now that Red Hat is part of IBM.
Can Red Hat continue to grow and develop IBM as a whole? IBM's cloud revenue accounts for 25% of total revenue with a $ 19 billion return, but Red Hat is small with sales of $ 3.4 billion in 2019, up 15% compared to the previous year. IBM will be able to integrate and sell more Red Hat software, but both companies were longstanding partners. IBM said Red Hat should provide IBM with two points of annual growth in its five-year annual revenue. Big Blue will obviously want to exceed these expectations.
Amit Daryanani, an badyst at Evercore, said in a research note that IBM would not initially get strong growth from Red Hat because it can not immediately recognize the company's reported earnings. .
Daryanani explained:
Although Red Hat's revenue profile is quite substantial (we estimate it is close to $ 4 billion for the year ended February) and the profitability is strong (operating margin of around 24%) , we note that the accounting treatment of deferred revenue of the target company ($ 2.8 million) B) will prevent IBM from recognizing a significant portion of Red Hat's deferred revenue upon conversion to actual revenue (short-term transitional impact). ); It is then that IBM will have to bear 100% of Red Hat's operating expenses.
Daryanani said that free cash flow would be a better way to see the impact of Red Hat on IBM's financial statements.
At a teleconference, Paul Cormier, president of products and technologies at Red Hat, said the company was focused on using open source to build a portfolio around the hybrid cloud. "Today, we are starting this journey with steroids, something that would have taken us several years to do, if at all," he said.
Will Red Hat remain truly neutral and independent? The purchase of Red Hat by IBM is probably the best result if you believe in open source. Both companies can mix well. It remains to be seen if Red Hat is really neutral and managed by the current management. Companies often merge, promise independence and the best of both worlds, and then go inland.
Whitehurst said in a note to employees:
You've heard me say that before, but it's worth repeating that Red Hat is still Red Hat. IBM is committed to maintaining the independence, neutrality, culture and industry partnerships of Red Hat.
I know you want to know what that means to you and it's pretty simple. Our mission, our culture, our "community first" commitment, our product portfolio, our management team, our daily activities, our brand and our soul will remain the same. Our unwavering commitment to open source – and all it takes to integrate it into the business – is what makes us Red Hat. It does not change.
What's more interesting in Red Hat's independent approach is the difference between the sales teams of the companies.
Arvind Krishna, senior vice president of cloud and cognitive software at IBM, repeated that Red Hat would remain the "Switzerland of the computer."
Red Hat product teams will make decisions based on their plan. And make their plan on how they contribute to the open source. This side is easy. The real question will be our behavior with customers and partners. Red Hat will have an independent sales team. It's a world of coopetition. Red Hat supports all hardware vendors and this will continue. These partnerships will remain confidential. This is what we mean by neutrality and independence.
Cormier added that the Red Hat sales team would not be remunerated for the sale of IBM products. "Independence is essential to guarantee Red Hat partners an equal chance (in competition with IBM), and Red Hat and IBM are firmly convinced of this," he said.
What does the roadmap look like? IBM and Red Hat customers can attend other integrations and combinations by the end of the summer. Companies will have to define their roadmaps as soon as possible.
Is IBM-Red Hat a multi-cloud point guard? IBM reiterated that with Red Hat, it would continue to develop partnerships with all major cloud providers, such as Amazon Web Services, Microsoft Azure, Google Cloud and Alibaba. It's clear that multi-cloud is the future, but many companies have leveraged VMware hardware with Dell Technologies to merge private and public clouds.
And will the developers stay with Red Hat? It should be noted that Red Hat and IBM have spent a lot of digital ink explaining the importance of this agreement for developers. First, IBM reiterated its commitment to open source. Then, Red Hat explained that his developer experience would not change and that his programs and resources would remain.
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