Big Blue’s Step towards Higher-Margin Products and Services

Big Blue’s Step towards Higher-Margin Products and Services


IBM on Sunday had announced of their acquisition deal with Red Hat for $34 billion. The decision by the IBM has been counted for as step toward its growth and transformation from hardware to computing Services Company. Among the other competitors like Google, Amazon and Microsoft in cloud services, IBM stands at the fourth place and facing comparatively slow growth rate.

Products of the Red Hat being open source are free for all and could be downloadable by anyone with its source code. But for Red Hat’s these products to remain of open source services, revenue of nearly $3 billion has been generated as support being paid by other benefited companies. For long, IBM among other remained not only a notable contributor to open source services of the Red Hat products specially Linux but remained a major user of it also. Oracle for its product, Oracle Linux, also use source code of Red Hat. Moreover most of the Fortune Global 500 companies use Red Hat’s Linux products.

For hosting of cloud services, Red Hat is not the major player; but for building of cloud services, yes it is. Its product line supports other companies to develop their public or private cloud services and other cloud-like platforms or manage application running on different cloud services using Red Hat’s open source codes at their own data centers.

IBM has market capitalization worth of $114 billion and for this merger deal, $190 per share of Red Hat will be paid in cash by IBM which is 63 percent of share’s closing price last Friday. To IBM it is the largest acquisition deals for accelerating it slow pace business of subscription-based software offerings.

For coming up to its rivals like Amazon, Microsoft and Alphabet in fast growing business of cloud service, IBM is hoping the deal as helpful. In past five years IBM faced 33 percent decline in the share price whereas Red Hat enjoyed 170 percent rise in share price for the same period. After take over similar trend has been seen in pre market trading on Monday as Share price of IBM become down by 5.6 percent whereas Red Hat share prices gone up by 52%.

As clearly reported by the IBM, Red Hat will continue to work as separate unit of the IBM, headed by the same management in their offices.

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I am an independent trader currency and commodity with about eight years of experience. I love the financial world because it is like one big puzzle and I hope we help each other out to solve the puzzle to help us realize our dreams. I received my BBA in Accounting (With Honors) - from The University of Texas - San Antonio. Achievements: Beta Alpha Psi National Accounting Honors Fraternity member, Leadership Challenge Participant, Dean's List. I have passed the Series 63, 22, Texas Real Estate exam, and the DRI Business Continuity exam.