With the 2019 acquisition of open-source powerhouse Red Hat under its belt and a new cloud-savvy CEO at the helm, IBM is looking to reverse a decade of declining revenue and sagging stock prices with a bold strategy focused on hybrid cloud.
CEO Arvind Krishna, who formerly led IBM’s cloud and cognitive computing division and engineered the $34 billion Red Hat acquisition, made IBM’s intentions clear in a LinkedIn post to employees in his first day on the job: “Hybrid cloud and AI are the two dominant forces driving change for our clients and must have the maniacal focus of the entire company. IBM has already built enduring platforms in mainframe, services, and middleware. I believe now is the time to build a fourth platform in hybrid cloud.”
The Red Hat deal closed last July and Krishna has only been CEO since April 6, so it’s premature to pass judgment, although some early indications have been positive. IBM got out of the gate quickly with the announcement in August that it had transformed its entire software portfolio to run on Red Hat’s OpenShift containerization platform through pre-integrated solutions called Cloud Paks. And Red Hat’s quarterly revenue soared by 24% in IBM’s Q4 2019 earnings report, hitting $1 billion for the first time.
Of course, the COVID-19 pandemic has upended everything, and there’s no way to anticipate the impact on IBM’s business going forward. Other challenges facing IBM are easier to anticipate, however. They include whether the buttoned-down, bureaucratic culture of IBM can mesh with the more freewheeling Red Hat, where former CEO Jim Whitehurst is credited with fostering an atmosphere of innovation and of empowering employees at all levels of the organization. For now, IBM is maintaining Red Hat as an independent subsidiary, but skeptics wonder how that will play out.
Along the same lines, now that Whitehurst is President of IBM, how will his working relationship with 30-year IBM veteran Krishna evolve? Outgoing IBM head Ginni Rometty, and her predecessor Sam Palmisano, held both president and CEO positions, so this dual leadership setup is new to the company.
Many in the analyst community are bullish on these latest IBM moves, but there are also critics who question whether the Red Hat acquisition is the game changer that IBM believes it is, who are looking for more clarity on what IBM means by hybrid cloud, and who point out that the hybrid-cloud battlefield is crowded with formidable opponents such as Amazon, Microsoft, Google and VMware, all of whom have staked out their own hybrid strategies. (See also: VMware’s ongoing reinvention)
Charles King, president and principal analyst at Pund-IT, says IBM is on the right track. “Red Hat complements IBM both tactically and strategically. The company naturally fits IBM’s support for Linux and open source, and the companies have been strategic partners for many years. In addition, Red Hat’s innovations in containers and Kubernetes (via its OpenShift platform) will play key roles in the continuing evolution of IBM’s hybrid-cloud solutions and capabilities.”
He adds that the Krishna/Whitehurst pairing leverages the complementary skills and knowledge of both men. Krishna has a deep
