IBM to Acquire Red Hat for $34 Billion

Posted on October 28, 2018 by Paul Thurrott in Cloud with 27 Comments

IBM announced today that it will acquire open source firm Red Hat for approximately $34 billion in cash and debt.

“The acquisition of Red Hat is a game-changer,” IBM chairman Ginni Rometty said in a prepared statement. “IBM will become the world’s number one hybrid cloud provider, offering companies the only open cloud solution that will unlock the full value of the cloud for their businesses.”

That will come as news to Microsoft, which is, in fact, the world’s number one hybrid cloud provider. But according to IBM, the combined assets of both firms will bring a major boost to “open source as the basis for digital transformation,” using technologies such as Linux, containers, Kubernetes, multi-cloud management, and cloud management and automation.

IBM and Red Hat have been partnering on enterprise-grade Linux for over 20 years, and the firms describe this acquisition as an evolution of that strategy.

“Powered by IBM, we can dramatically scale and accelerate what we are doing today,” Red Hat president and CEO Jim Whitehurst wrote in an email to employees today. “Together we can become the leading hybrid cloud solutions provider.”

Finally, the firms say that Red Hat will remain independent.

“Red Hat is still Red Hat,” Whitehurst continues. “When the transaction closes, we will be a distinct unit within IBM and I will report directly to Ginni [Rometty]. Our unwavering commitment to open source innovation remains unchanged.”

The acquisition is subject to regulatory approval and to Red Hat shareholder approval. But it is expected to close by the second half of 2019.

 

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Comments (27)

27 responses to “IBM to Acquire Red Hat for $34 Billion”

  1. thalter

    The sun is already setting on RedHat, much like it has on Windows Server. As enterprises move away from on-premises and IaaS server-based solutions to PaaS, SaaS, and containerization solutions like Kubernetes and CloudFoundry, server operating systems will matter less and less.


    No one cares what the operating systems is underneath AKS or GKE (which is almost certainly Amazon's and Google's proprietary flavor of Linux, respectively).

    • mattbg

      In reply to thalter:

      It matters for a huge installed base of legacy applications, which is likely the sponge that IBM is trying to wring dry.


      This does put them in competition with Microsoft at the cloud level as Microsoft is playing the same game of having a large base of legacy customers that will gradually move to the Cloud.

  2. bigjon-x64

    I wonder how this will affect their other OS lines, AIX, OS400, z/OS, VSE.

    • hrlngrv

      In reply to bigjon-x64:

      AIX is still a product? I just checked, and the last release was 3 years ago. As for z/OS and VSE, banks and insurance companies still rely on mainframes. Probably more than a few government agencies too.

      OTOH, OS400 (and AIX) are for minicomputers. How many of those are there left in the world? What's their rate of decline?

  3. hegerty

    Taps is sounding for RedHat already. It won't happen fast, but IBM will do to RedHat what Oracle did to Sun, choke it to death and claim victory.

  4. dcdevito

    No doubt this all has to do with OpenShift, providing containers to clients and allow them (using IBM as them middle man) to choose their cloud platform of choice. It's an interesting move, especially for those considering Kubernetes but didn't trust Google.

  5. Jhambi

    Does anyone actually use openshift over Azure and AWS?

    • matsan

      In reply to Jhambi:

      Amen.

      Our previous hosting provider (Rackspace) seems to be the final stronghold of openstack. When evaluating their cloud offerings 18 months ago it was so easy to go to AWS instead. Mainly due to Rackspace's packaging of their cloud offerings but also comparing openstack features to AWS. Nothing in openstack seems to be well integrated and thought-out like the bits and pieces of AWS.

      Also, with Docker and Kubernetics - who cares about the OS anymore?

      • Stooks

        In reply to matsan:

        "who cares about the OS anymore?"


        The container runtimes and Kubernetics care because without the OS they can't run.


        Security and container bleed are not up to par yet IMHO. They are making progress but they are not there yet.

  6. skane2600

    I guess I don't really understand the open source environment. If open source was everything it purports to be, shouldn't all Linux vendors be pretty much interchangeable since they're all based on the same code?

    • rmlounsbury

      In reply to skane2600:


      They aren't really based on the same code. Red Hat has a lot of value add through enhancements they make to their flavor of Linux. While the code might be open source if you want support that is what you ultimately pay for. Red Hat has many technologies only available in their flavor of Linux and technology portfolio.

      • skane2600

        In reply to rmlounsbury:

        So if you took a snapshot of Red Hat's code today, you'd have parity until the next update? Or are some of those technologies proprietary? When I hear about extensive support required, what goes through my mind is something like "proprietary through obscurity".

        • rmlounsbury

          In reply to skane2600:

          It depends on the license that RH is using for the various technologies involved in their source code. Open Source just means you can get access to the code. The license in which it is licensed under determines what you can do with that code.


          Also, as marthorechanne noted RH likely has rolled up multiple proprietary technologies into their flavor of Linux. Things such as their Hypervisor and many other technologies from their portfolio.


          RH also prevents updates unless you pay for their subscription. So you can install RH but you won't get updates unless you pay their annual support cost.


          But, a lot of enterprise datacenters are built on RH.

        • F4IL

          In reply to skane2600:

          You're paying for a company's abilities, expertise and support for a particular use case scenario. Deploying and maintaining RHEL on the Summit super computer in Oak Ridge is a completely different task compared to deploying and maintaining Ubuntu in data centers and banks.

          It is quite obvious that in many cases you can't just call somebody else.

    • hrlngrv

      In reply to skane2600:

      You could roll your own Linux. Stick with source tarballs, and you wouldn't be reliant on any packaging system. You'd also have a full time job checking for, building and installing updates.

      Management and update/upgrade systems will differ between distributions. Also, different distributions have different philosophies on commerical and/or closed source packages and supporting modules.

    • maethorechannen

      In reply to skane2600:


      It's not all the same code though. You often get several separate projects that do the same thing slightly differently. Especially once you get above the kernel and low level tools (the GNU bit the "it's GNU/Linux" bores go on about).

  7. My Hell baby speaking

    I can see Microsoft knocking the door over at Canonical, since Linux is the dominator on Azure and C is the only Linux shop remaining out in the wild.

    For Redhat I'm sorry. Manhattan release was my first operating system. I'll always remember.

    • matsan

      In reply to My Hell baby speaking:

      After Ubuntu's brave bet on wayland and gnome in the disastrous 17.10 release I finally went to mac OS. There are now so many better desktop linux distros so Ubuntu and Canonical may be another Nokia for Microsoft and they should stay away.

      • maethorechannen

        In reply to matsan:


        Canonical have moved focus to where the money is - server side. The Desktop is kept going to save face, and is basically a charity effort now (which is why they're moving to wayland and gnome).


        At least if MS bought Canonical they could let the Desktop die without anyone getting upset, as almost everyone who cared about it would run screaming once MS got involved (like what happened when they announced they were buying GitHub).


        I don't think Canonical would be another Nokia because I don't think it would actually cost them all that much.

    • rmlounsbury

      In reply to My Hell baby speaking:

      Eh, I doubt Microsoft buys a Linux distro. The money isn't in owning the OS rather the platform the OS ultimately runs on. Microsoft wants Dev's to use their tooling (PowerShell/Visual Basic/Etc...) on their platform (Azure). Having to maintain another OS is probably more pain that value add.

      • Mike Widrick

        In reply to rmlounsbury:

        There's still plenty of money in supporting the OS and in jobs built around the OS, MS knows this very well. Many of the people on this site know this first hand, I'll bet.


        To add a linux vendor/distro is probably their best bet. RedHat's growth is very good, but IBM's brand will kill that now. With all of Windows 10's public issues and rocky server patches, they'd be wise to hedge their bets. They're already heavily involved in the cloud, ported multiple things to Linux, so it's a small lift.


        I don't think Windows is worse, even on servers. But this always-update era seems to be hitting them rough, and financially it might make more sense to offer first party Linux OS support, esp when IBM presents them with such a golden egg opportunity. Even normal mergers and acquisitions are painful setbacks, but in this case, the IBM reputation makes that even worse, their competition would be foolish not to double down at this time, in some way.


        This is an early Christmas gift for Nadella, he shouldn't throw it away.

        • rmlounsbury

          In reply to solomonrex:

          But that isn't what Microsoft is becoming. The OS is being pushed to the edge of Microsoft's product portfolio and adding yet another OS I still don't think makes sense to what Microsoft is doing today.


          Nadella has gone on ad nauseam about how everything MS does works anywhere and this isn't a Windows first world for MS anymore. Microsoft is continuing it's evolution to services company and not an OS company anymore.


          I still contest that maintaining another OS is more headache and cost than value compared to building the platform that runs said OS and providing tools such as SQL for Linux that power the systems on those OS platforms.

        • A_lurker

          In reply to solomonrex:

          The question for both Ginni and Nadella will they have the competence to seize the opportunities the purchase will probably present. Ginni has a chance to make serious inroads on the enterprise OS market. But I suspect she will butcher the chance. If IBM follows there typical pattern, Nadella has a chance to expand cloud presence at the expense of IBM. But then Nadella has not shown himself to be terribly competent either.

        • jreuter

          In reply to solomonrex:

          You appear to be forgetting about Microsoft's well deserved reputation for destroying what they acquire.  And a fair amount of what they develop in-house.


          Plenty of people have not forgotten.

      • dontbe evil

        In reply to rmlounsbury:


        devs can use anything on azure, not only ms tools

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