Companies like Facebook and Amazon have dabbled with Red Hat's open source knowledge before they went on to become a multi-million-dollar business. Adding Red Hat will strengthen IBM's push into cloud computing and give it "open source credibility", according to Oppenheimer analysts.
Red Hat is a software company most known for being a distributor of a version of Linux, an open-source operating system that businesses usually use to run data centres. It's worth noting that, on the other hand, IBM has been relying on heavily on its Watson AI and its marketing gimmicks in the recent times.
The purchase is created to bolster IBM's floundering cloud business.
In an interview with CNBC, however, IBM Chair and CEO Ginni Rometty said IBM didn't pay too steep a price. Red Hat solves that problem for IBM, offering an already well established open source solution, but now under the banner of IBM's Hybrid Cloud.
"We're thrilled to be able to jointly drive our hybrid cloud leadership and support the expansion and growth of Red Hat's leading open-source technology portfolio", Jim Whitehurst, CEO of Red Hat, said during the call. While some of that has been from divestitures, most is from declining sales in existing hardware, software and services offerings, as the company has struggled to compete with younger technology companies.
IBM's decision to acquire Red Hat for US$34 billion is a bold stroke, an admission of weakness and a mighty complication. Red Hat was founded in the 1990s by Canadian Bob Young.
Both companies took pains to say that the Red Hat ethos and commitment to the open-source community would continue. "This combination not only represents a truly fantastic outcome for our shareholders, but it is a catalyst for Red Hat to drive powerfully into the future". "The announcement is the evolution of our long-standing partnership", said Rometty.
Rometty said the acquisition brings together the "best-in-class" hybrid cloud providers, enabling companies to securely move all business applications to the cloud in the process.
Over the last two decades, Red Hat has championed the open source movement.
IBM's acquisition of Red Hat is expected to close in the second half of 2019. "IBM is acquiring Red Hat for our fantastic people and our incredibly special culture and approach to making better software".
In an email to Red Hat employees, Red Hat president and CEO Jim Whitehurst said the company will be a "distinct unit within IBM" and that he'll report directly to Rometty.
The deal comes just two weeks after IBM reported that its sales for its quarter ended September 30 came in at $18.8 billion, down two percent from year ago period, but flat when adjusted for currency fluctuations.