IBM Trying To Shape It's Future Through $34 Billion Acquisition of Red Hat - VRGyani News and Media


Monday, March 11, 2019

IBM Trying To Shape It's Future Through $34 Billion Acquisition of Red Hat

When IBM CEO Ginni Rometty took the stage at the 2019 Consumer Electronics Show, tech's biggest trade fair, she made one thing clear: IBM has a new mandate.

The company, which was founded in 1911, had worked on the 1969 NASA mission to the moon, helped invent the ATM and developed magnetic stripe cards. Now, Rometty wants to turn the legacy company toward the technologies of the future, such as cloud computing and blockchain.

It's a large pivot, but one that Rometty, the first woman to lead the company, is confident will pay off.

"To be trusted, it means that you have to prepare society for whatever set of technologies it is that are coming along," Rometty said at CES.

As CEO, Rometty, who stepped into IBM's top job in 2012, has said she's "obsessed" with what's next and is continuously looking ahead to the next big thing.

That mentality was evident in October 2018, when IBM said it would buy cloud computing firm Red Hat for $34 billion — the largest software deal in history.

Red Hat, which facilitates the movement of data across various cloud platforms, is an industry leader. Dimitris Mavrakis, research director at ABI Research, viewed the expensive purchase as a smart decision.

"[It] illustrates that IBM is embracing the hybrid cloud which is what many enterprise clients require for the future," Mavrakis said.

But the surprise acquisition has also been flagged by industry watchers as a major, costly risk.

For one thing, IBM will now be working with some of its competitors in the cloud space, such as Amazon Web Services and Google Cloud Platform. Red Hat has partnerships with these companies, and IBM has said it plans to "build and enhance" these relationships.

There's also some concern about whether the two companies will be able to integrate successfully. Red Hat president and CEO Jim Whitehurst stayed in his role and is running Red Hat as its own unit within IBM.

He'll report to Rometty, who has experience bringing companies together.

She joined IBM in 1981 and in 2002, she was instrumental in helping IBM purchase PricewaterhouseCoopers' IT consulting business. She then worked to integrate the two properties.

One other area where IBM is taking a risk is blockchain. The company is betting heavily that the new technology will revolutionize everything from shipping to health care and banking.

There's a lot of hype surrounding blockchain, which, given how new it is, can make it hard to distinguish what's real and what's noise. But IBM's efforts in the space have been significant.

It now has more than 1,500 employees working on roughly 500 blockchain projects, and has high-profile partnerships with entities like Columbia University.

Blockchain is essentially a shared digital ledger. Once entered, transactions cannot be easily changed, creating a largely immutable record. The technology is most associated with cryptocurrency, but several companies, including IBM, are exploring its use in other areas.

IBM's work on blockchain is not out of character for a company that's often among the first to embrace new technology, said Josh Olson, an analyst at Edward Jones. Yet pioneering technology comes with its own challenges.

"Historically we've seen IBM invest in a technology early with some early promise, but then they've had difficulty commercializing good technologies or innovations at scale," Olson said.

He cited IBM's work in artificial intelligence and the creation of the Watson supercomputer as one example. The technology underpinning Watson proved costly and difficult to adopt commercially, which allowed competitors to catch up and then pass IBM.

Still, if the company can maintain its momentum, and if blockchain turns out to be a winner, IBM will benefit, both Olson and Mavrakis said. And Rometty will be one step closer to her larger goal: for IBM to be under the surface, everywhere.

"You don't always see us," she said in her CES address. "But you do always rely on us, underneath."

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