IBM to buy Linux leader Red Hat for $34-billion

IBM is seen at the Mobile World Congress in Barcelona Spain

IBM is seen at the Mobile World Congress in Barcelona Spain

"It changes everything about the cloud market", said IBM CEO Ginni Rometty in a statement on Sunday evening South African time.

"IBM has always been a proprietary software and services company, and this is an open-source play", said Venero, who praised Red Hat for its strong channel partnership in enterprise accounts.

IBM has unveiled plans to acquire open source specialists Red Hat, in a blockbuster US$34 billion deal created to bolster the tech giant's hybrid cloud capabilities. It will just have to worry about potentially being dissolved into IBM's businesses or its open source culture and principles being diluted in the process.

Red Hat's flagship product, Red Hat Enterprise Linux, was the operating system of choice for private data center operators over the last decade or so, firmly establishing Linux as a viable alternative to Microsoft Windows Server and commercial Unix operating systems among those operating their own data centers.

And the complication? The deal is being pitched as making IBM and Red Hat the premier hybrid cloud company.

For its part, Red Hat will not have to worry about going bankrupt in the near future. Red Hat meanwhile reported its earnings back in September which were also disappointing and its share price has dropped 19% since then.

And yes, both companies are aware of the impact this will have on Linux and open source at large.

The announcement comes as tech giants are betting that more companies and users will pay a subscription fee to store their data elsewhere, rather than buy expensive mainframes and hard drives - which had been IBM's bread and butter.

IBM's decision to acquire Red Hat for US$34 billion is a bold stroke, an admission of weakness and a mighty complication. This is the next chapter of the cloud.

Red Hat CEO Jim Whitehurst will continue to lead the company and will join IBM's senior management team, reporting to Rometty. The two companies will remain committed to "the continued freedom of open source, via such efforts as Patent Promise, GPL Cooperation Commitment, the Open Invention Network and the LOT Network" open-source licenses and initiatives, according to the companies' joint statement. "IBM intends to maintain Red Hat's headquarters, facilities, brands and practices".

In May the two companies unveiled a collaboration agreement to target the hybrid cloud sector through technology and services integration in a move to accelerate cloud adoption. Will it be a positive for the open source and Linux communities? "When the transaction closes, we will be a distinct unit within IBM and I will report directly to Ginni [Rometty]". "Since the day we chose to bring open source to the enterprise, our mission has remained unchanged".

The acquisition illustrates how older technology companies are turning to dealmaking to gain scale and fend off competition, especially in cloud computing, where customers using enterprise software are seeking to save money by consolidating their vendor relationships.

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