REVIEWING THE RED HAT/IBM RESULTS – TECH

IBM purchased Red Hat a year ago for $33 billion.  We looked at the specifics of that deal a few months ago, so it’s time to take another look at how the combined company is doing.

Red Hat is the largest acquisition that the 108-year-old tech company has made (ref WSJ), and the plan was to, with the help of Red Hat, reshape the company in a corporate world that is undergoing a shift to the cloud.  The third quarter results are the first to incorporate the results of Red Hat’s joining IBM. Those show that Red Hat generated $987 million in revenue for the period, representing 19% growth for the business from a year earlier.  And, even better news: that is a better rate of growth than Red Hat saw on its on in its last four reported quarters.  IBM CFO Jim Kavanaugh and other company executives are highly enthusiastic about the results, reported by Gallagher in the Journal as having mentioned Red Hat more than 50 times during their earnings call.  But, it also seems that the results are also showing that there is only so much that Red Hat can do to turn around IBM’s recent slowdown.  IBM’s overall revenue slipped by 4% to $18.03 billion in the quarter, resulting mainly in the slowdown in global technology services which is the company’s largest business unit.  Regrettably, this was the lowest quarterly revenue that IBM has reported in 21 years.  It’s reported that IBM still believes that it can turn around growth next year with the expectations that Red Hat will play a major role.  In running the numbers, it looks like Red Hat’s contribution, in the best case scenario, would still only amount to about 6% of IBM’s total.  So, it’s seems that there’s definitely more to think about and work on at IBM.  Sounds like it’s time to pay good attention to all those moving parts and assure that all are achieving at maximum capacity.

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