News

IBM Completes Historic Red Hat Acquisition

• By John K. Waters
• July 10, 2019

IBM completed its acquisition of open source solutions provider and long-time Java community leader Red Hat yesterday. The $34 billion deal was Big Blue's largest acquisition to date, and one of the largest tech company acquisitions in history.

Red Hat CEO Jim Whitehurst will continue to run the organization, IBM said in a statement, which will operate as a unit inside IBM's Cloud and Cognitive Software segment. He will now report to IBM CEO Ginni Rometty. The organization will also keep its Raleigh, N.C. headquarters, as well as the "Red Hat" brand.

The key driver of this acquisition is IBM's big bet on the cloud. Speaking to reporters during a teleconference, Arvind Krishna, SVP of IBM's Cloud and Cognitive Software, described it as "Chapter Two of our cloud journey."

"IBM has been championing and contributing to open source for many decades," Krishna said. "We fundamentally believe that open source is a way to bring innovation to the market. We have this common belief in what hybrid cloud means to our clients. We believe that hybrid cloud unlocks tremendous value and is the only way forward for our clients."

Paul Cormier, EVP of Red Hat's Products and Technologies group, was also on the call. "When we started on this journey of Linux many years ago," he said, "of making Linux the ubiquitous platform out there and then, further on down the line, really building our portfolio around that to build a truly hybrid cloud product portfolio, our goal had always been to make that the ubiquitous set of technologies and platforms across the enterprise," said. "I think today what we've seen and what we start on is that journey on steroids. With IBM taking that forward, it will accelerate that journey for us in spades."

Krishna emphasized that, although Red Hat is now part of IBM, there is no plan to consolidate resources with a layoff or merge cultures. "Both companies have sales forces and both have channel programs," he said, "and it will remain that way. We would love every possible partner to be partners for both, but they are not becoming one."

"We are not talking about layoffs or any of those things," Krishna added. "This acquisition is about all of our revenue synergy and growth going forward."

Red Hat has been involved with OpenJDK, the open source implementation of Java, since 2007, when it signed Sun Microsystems' OpenJDK Community TCK License Agreement. The TCK (Technology Compatibility Kit) is the official test suite for compliance of implementations of Java Specification Requests (JSRs); they can only be provided by the spec lead of a JSR. Red Hat was the first big software vendor to license the TCK.

Also, Red Hat has stepped in three times to take on the stewardship of OpenJDK projects no longer supported by Oracle -- OpenJDK 6 in March 2013, OpenJDK 7 in June 2015, and OpenJDK 8 in April of this year.

Red Hat addressed some specific concerns that Java isn't competitive in emerging cloud-native architectures, such as microservices, containers, and serverless, with its recently released Quarkus framework, which is designed to significantly reduce the footprint and latency of Java applications.

IBM said Red Hat had revenue in its February 2019 fiscal year of $3.4 billion, up 15 percent year over year. The June-quarter revenue was $934 million, also up 15 percent. Subscription revenue in that quarter rose 15 percent, and service revenue was up 17 percent.