Acquisitions

Why IBM buying Red Hat is a Gamble that needs to Pay Off

‘Change or else you will decay.’ This is the cardinal rule that IBM has been trying to pursue for several years now but without much success. However, the years of colossal failure seems to have got better off the tech giant on Monday, after the announcement that it has bought Red Hat Inc for whopping $34 Bn.

The deal is a historic one given that it is IBM’s biggest deal till date and also the most expensive deal in the history of software industry. On the outset, this historic deal seems to be all about IBM’s urge to give a real head start to its cloud computing business. But the deal is essentially more than that.

It is mostly about the quest for transition, transiting from a company that is dependent on traditional businesses like mainframe servers to the one that is dependent on new businesses like cloud computing & artificial intelligence. And this is what I was referring to the so called ‘change’ in the beginning of my article.

 

This change is, by the way, critically important, since what is at stake is the very existence of 107 year old proud computer company. I may be accused of little exaggeration here, but there is no denying the fact that the patience of IBM’s investors has waning off for a pretty long time.

The investors had been waiting patiently ever since Ginni Rometty took over the reins of the company in 2012. Rometty came with the promise that she would offer new direction to the company in the wake of waning demand for mainframe servers.

To assuage the investors, she started several projects that were mainly focused on breakthrough technologies like AI, big data, blockchains and machine learning. And boy, wasn’t she really aggressive. I mean under her leadership, IBM acquired nearly 30 companies from 2012 to 2015. She even broke lucrative deals with some of the big tech companies including Apple, Twitter and SAP to offer some much needed life to company’s new businesses.

While Rometty was putting all the massive efforts, the investors were patiently waiting for some quarterly profits. But that unfortunately never happened. IBM’s quarterly results have been never-ending chapter of disappointments despite Rometty sincere efforts during her six-year tenure.

Even IBM Watson, IBM’s most ambitious project focused on AI, could not help the company to turn the tide.

But then will Red Hat’s acquisition can help this century-old company to eventually turn the tide. Well, there is no simple answer for this question. That said, there is little doubt in my mind that this acquisition will make IBM a formidable player in the cloud computing area.

The acquisition will also help IBM to compete with Amazon, Google and Microsoft. These companies, as is well known, are already dominant players in the cloud computing arena.

However, the bigger question is will this acquisition eventually help IBM to make the successful transition that it has been pursuing for such a long time. In this context, this tech giant has taken a huge gamble and let’s all hope that this gamble does pay off. And If this gamble doesn’t pay off then this tech giant will be burdened by its own glorious history.

 

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