Hindustan Times (Chandigarh)

IBM chases Amazon in cloud with Red Hat buy

- Bloomberg

NEW YORK: IBM’S $33 billion purchase of Red Hat Inc.— the world’s second-largest technology deal ever—is aimed at catapultin­g the company into the ranks of the top cloud software competitor­s.

The cash deal, IBM’S biggest by far, boosts the 107year-old computer-services giant’s credential­s overnight in the fast-growing and lucrative cloud market — and gives it much-needed potential for real revenue growth. The company once synonymous with mainframe computing has been slow to adopt cloud-related technologi­es and has had to play catch-up to market leaders Amazon.com Inc. and Microsoft Corp. in offering computing and other software and services over the internet. Shares of IBM slumped in premarket US trading.

‘The acquisitio­n of Red Hat is a game-changer,” said Ginni Rometty, chairman and chief executive officer of Internatio­nal Business Machines Corp., in a statement Sunday. “It changes everything about the cloud market.”

IBM has seen revenue decline by almost a quarter since Rometty, 61, took the CEO role in 2012. 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. She has been trying to steer IBM toward more modern businesses, such as the cloud, artificial intelligen­ce and security software with inconsiste­nt results.

IBM shares declined about 5% in early US trading on Monday. The stock has dropped 19% this year, giving it a market value of $114 billion.

In its third-quarter earnings report, IBM disappoint­ed investors who were seeking more progress in those areas after six years of declining sales that had only recently started to show gains. Still, the improvemen­ts had been coming largely from IBM’S legacy mainframe business, rather than its so-called strategic imperative­s. Cloud revenue grew 10% in the period to $4.5 billion, but that was slower than the 20% expansion in the second quarter.

The Red Hat deal could signal to investors that IBM wasn’t as well positioned in cloud as it had been claiming, said Jim Suva, an analyst at Citigroup Research.

“We expect investor skepticism around the deal given IBM’S messaging that it is well underway in its transforma­tion,” he said.

Investors have grown impatient as the stock has dropped 31% over the last five years. Warren Buffett virtually gave up on IBM last year. His conglomera­te, Berkshire Hathaway Inc., cut its stake in the company by 94%, while increasing its investment in Apple Inc.

 ?? MINT ?? Ginni Rometty, chairwoman, president and CEO of IBM
MINT Ginni Rometty, chairwoman, president and CEO of IBM

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