IBM - Strong Quarterly Results And A New CEO

I think there’s a lot to like moving forward. There’s reassurance that the dividend is safe, stabilizing revenues and a lot of shots on goal for future growth especially with Red Hat coming into to fray and strategic imperatives becoming a larger segment of IBM’s overall revenue pie as this is a higher growth business (Figure 1).

Figure 1 – Highlighting IBM’s business segments mix

Red Hat Acquisition:

IBM acquired Red Hat for $34 billion and investors are beginning to realize the added value this property brings to the table.

"The acquisition of Red Hat is a game-changer. It changes everything about the cloud market. IBM will become the world's #1 hybrid cloud provider, offering companies the only open cloud solution that will unlock the full value of the cloud for their businesses.”

"Most companies today are only 20% along their cloud journey, renting compute power to cut costs. The next 80% is about unlocking real business value and driving growth. This is the next chapter of the cloud. It requires shifting business applications to hybrid cloud, extracting more data and optimizing every part of the business, from supply chains to sales." - Ginni Rometty, IBM CEO

Most notably, IBM says the acquisition will accelerate IBM's revenue growth, gross margin and free cash flow within 12 months of closing. We’re already seeing the acquisition add value to IBM (Figure 2). This growth accelerator is a much needed boost to the company’s stagnant growth over the past few years and will drive IBM further into the future of the cloud and where businesses are mitigating to from an enterprise perspective. Red Hat is the world’s leading provider of open-cloud solution and the emerging leader in the platform for hybrid-cloud and multi-cloud. IBM is attempting to reset the cloud landscape via its acquisition of Red Hat and in the process will become the undisputed number one leader in hybrid-cloud which is an emerging $1 trillion market.

Companies are moving into the second chapter of cloud where they’re moving away from simple cost synergies/business value to an inflection point of moving all their processes and their data to a hybrid environment. The first chapter was estimated to be roughly 20% of the cloud market and this second chapter is estimated to be the next 80% with hybrid, multi-cloud, open, secure end-to-end in multi-cloud management.

Red Hat brings 90% penetration in the Fortune 500 and they are now one of the key foundational technologies of the hybrid-cloud. As clients transition to hybrid and multi-cloud, Red Hat can leverage their large installed base and its open architecture. Hence why Red Hat has emerged as one of the key foundational technologies for hybrid cloud computing. All of this feeds into analytics, data, AI and Watson since all that combined data across these environments needs to be delivered in the secured manner.

Figure 2 – Impact of Red Hat acquisition during its Q4 earnings  

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Disclaimer: I am the sole author of this content. All content is original and free of plagiarism. I use reasonable care to ensure that all facts and statements within the content are true and ...

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