IBM Hopes to Double Sales at Red Hat in Next Three Years--Update
October 20 2020 - 2:00PM
Dow Jones News
By Asa Fitch
International Business Machines Corp. hopes to double sales at
its Red Hat open-source software unit in the next three years as
Chief Executive Arvind Krishna aims to restore growth at the tech
titan.
Red Hat has been enjoying annualized sales growth of above 15%
in recent quarters, Mr. Krishna said at the WSJ Tech Live
conference, putting it on a trajectory to achieve a target of
doubling revenue from the more than $3 billion it had when IBM made
the acquisition, the biggest in its history.
IBM last year paid around $33 billion -- a large premium on its
share price at the time -- to acquire the company. But Mr. Krishna
said the growth in the next few years will show it was a smart
deal.
"I think people will regard that premium as actually having
underpaid," he said.
IBM in recent years has struggled as some of its historic IT
services business contracted and customers flocked to
cloud-computing where rivals such as Amazon.com Inc. and Microsoft
Corp. have led. IBM reported declining revenue in 30 quarters over
the last 10 years, and its stock price has fallen sharply, even
though its sales remain gigantic, at over $75 billion a year.
Mr. Krishna has been trying to improve its prospects through a
greater focus on cloud computing, where clients rent remote
computing power instead of operating their own machines. In that
vision, thousands of companies will migrate to the cloud in the
coming years, but they will keep some equipment in-house. They also
are expected to use multiple cloud providers, creating
opportunities for IBM to manage the complexities of that setup.
Red Hat specializes in software that's key to IBM's revival
strategy that Mr. Krishna said would deliver mid-single-digit
revenue growth rates in two years.
IBM recently said it plans to spin off its managed IT
infrastructure arm representing about a quarter of its employees
and revenues. The spinoff plan, unveiled Oct. 8, was the company's
first major reshuffling under Mr. Krishna, who took the top post in
April.
Mr. Krishna said Tuesday it was more important for a company to
be growing than large.
Shedding a big chunk of the company where revenue was falling
should help with the turnaround. A rising topline, Mr. Krishna
said, was what would get investors excited about IBM's stock.
"Growth is what the market looks at as the proxy for
sustainability," he said.
Write to Asa Fitch at asa.fitch@wsj.com
(END) Dow Jones Newswires
October 20, 2020 13:45 ET (17:45 GMT)
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