IBM aims for cloud by buying Red Hat

IBM’s $33 billion purchase of Red Hat — the world’s secondlargest technology deal ever — is aimed at catapulting the company into the ranks of the top cloud software competitors.

The cash deal boosts IBM’s credentials overnight in the fastgrowing and lucrative cloud market while giving it much-needed potential for real revenue growth.

The company once synonymous with mainframe computing has been slow to adopt cloudrelated technologies and has had to play catch-up to market leaders Amazon.com and Microsoft in offering computing and other software and services over the internet.

IBM, a 107-year-old computer-services giant, has seen revenue decline by almost a quarter since Ginni Rometty took on the CEO role in 2012. Although some of that decline has been a result of divestitures, most of it is from declining sales in existing hardware, software and services offerings as the company has struggled to compete with younger technology companies. Rometty, 61, has been trying to steer IBM toward more modern businesses such as the cloud, artificial intelligence and security software, with inconsistent results.

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.

IBM shares fell 4.1 percent Monday to close at $119.64, while Red Hat shares soared 45 percent to close at $169.63.