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IBM $34B Deal for Red Hat Will Hinge on Partner Acceptance

The acquisition of Red Hat by IBM for $34 billion may not be completed until the second half of 2019, but it’s already clear both companies are betting on partners to make it ultimately successful.

IBM CEO Ginny Rometty told investors today that acquisition of Red Hat will greatly further IBM’s hybrid cloud computing ambitions, which IBM says already generates $19 billion in annual revenues. IBM is betting that the acquisition of Red Hat will not only strengthen IBM’s ability to compete in that space but also expand opportunities for IBM and its partners to deliver hardware, software, and services. In all, IBM says Red Hat will play a critical role in expanding IBM’s ability to compete in a total addressable market it sizes at $1 trillion.

Ginny Rometty

“This lifts all IBM boats,” says Rometty.

Rometty says the addition of Red Hat will increase revenue by 200 basis points on a compound annual growth rate over the next five years.

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To achieve that goal IBM is promising to walk a fine line between IBM and the continued independence of Red Hat, which will join IBM’s Hybrid Cloud team as a distinct independent unit. Both IBM and Red Hat are committed to Kubernetes clusters for deploying containers as the foundational element of their hybrid cloud computing strategies.

Red Hat has extensive partnerships with Amazon Web Services (AWS), Microsoft Azure, Google Cloud, and Alibaba. IBM in addition to partnering with Red Hat for over 20 years also has extensive relationships with VMware. But VMware as of late has been moving closer to AWS.

Rometty says as part of the move to acquire the most critical initial aspect of the acquisition will be the integration of the two company’s cultures. Red Hat will continue to be led by Jim Whitehurst and Red Hat’s current management team. Jim Whitehurst also will join IBM’s senior management team and report to Rometty.
IBM doesn’t plan to make any substantial changes to the Red Hat channel strategy, adds Arvind Krishna, senior vice president of Hybrid Cloud for IBM.

“If anything, we want to improve them,” says Krishna. “The independence of the Red Hat Go-to-Market is essential.”

Paul Cormier, executive vice president and president for products and technologies for Red Hat, says the acquisition will also increase the rate at which Red Hat will grow by leveraging IBM’s presence in 170 countries.

“We’ll be able to grow at a much faster pace than we could have on our own,” says Cormier.

Of course, a lot can happen between now and when the deal for Red Hat is scheduled to close sometime late next year. It may even turn out that IBM is paying a premium for a company that leverages free open source technology. Whatever the outcome the one thing that is certain the channel will play a crucial role in determining the outcome.

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