IBM buys Linux giant Red Hat to thrive in the cloud

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IBM has agreed to acquire open-source software company Red Hat for $34 billion, the company announced Sunday. It earned its distinction for being one of the first companies to make a living from open source software the way it was meant to be, by offering services in relation to operating and maintaining Linux systems, especially on the business side. "The largest software transaction in history and it's an open source company".

"Today is a banner day for open source".

Arvind Krishna, senior vice president of IBM's Hybrid Cloud division, the unit that will house Red Hat, tells Barron's the market potential for that 80% is $1 trillion.

"Importantly, Red Hat is still Red Hat".

IBM's decision to acquire Red Hat for US$34 billion is a bold stroke, an admission of weakness and a mighty complication.

IBM CEO Ginni Rometty dissed the public cloud and noted that most companies are 20 percent along the cloud journey and "renting compute power to cut costs".

Rometty, 61, has been trying for years to steer the 107-year-old technology giant toward more modern businesses, such as the cloud, artificial intelligence and security software. Red Hat will still be helmed by Jim Whitehurst and Red Hat's current management team. Companies today are already using multiple clouds. IBM would compete in the cloud market by offering an alternative that won't lock customers down to the provider's tools and services. Red Hat made bets to compensate for this, most prominently with OpenShift and a container platform. In particular, they said they are committed to open-source efforts as Patent Promise, GPL Cooperation Commitment, the Open Invention Network and the LOT Network.

Anticipating concerns that the acquisition would endanger Red Hat's appeal as an agnostic provider of open-source software, IBM said it will "remain committed to Red Hat's open governance, open source contributions, participation in the open source community and development model, and fostering its widespread developer ecosystem".

IBM's emphasis of hybrid clouds as the reason for the deal shows the company thinks it will be better off tending to workloads that users put in clouds other than its own.

In its early days, the company enjoyed the advantage of being used extensively by the U.S. military as the Department of Defence has certified its Red Hat Enterprise Linux product for use.

"Red Hat was previously able to position itself as the Switzerland for on-premises computing", Mueller said. One analyst, Trip Chowdhry at Global Equities Research, suggested in a note to clients that China, whose infrastructure is built on Linux, might not grant its approval.

The boards of both companies have approved the deal, though it is still subject to Red Hat shareholder approval, they said.