IBM Has Its Head In The Clouds
IBM (NYSE: IBM), also referred to as Big Blue, has struggled with revenue growth for more than five years. In Oct. 2018, IBM announced its acquisition of Red Hat for $34 billion -- IBM's largest acquisition in its 108-year history. And it didn't come cheap, with a price tag of almost 10x sales. Red Hat is the leading provider of hybrid cloud solutions, a rapidly growing sub-sector of the overall cloud industry.
The acquisition was meant to combine Red Hat's industry-leading position with IBM's incumbency and scale position to accelerate Red Hat's already explosive revenue growth, and hopefully help return IBM to top-line growth. The acquisition closed on July 9. Let's take a look at IBM's third-quarter results, the first quarter with a Red Hat contribution to see if its strategy is working.
Despite the partial quarter, IBM showed evidence that its strategy to accelerate Red Hat's growth is working. Revenue growth for Red Hat in the third quarter grew 20% year-over-year on a constant currency basis. This was an acceleration from its prior revenue growth run rate of 16%. However IBM's revenues declined 0.6% as Red Hat only accounts for about 6% of IBM's total. Thus, despite the size of the acquisition, Red Hat just isn't big enough to move the needle...yet.
Source Fool.com
