Broadcom’s $61 billion buy of VMware means opportunity for Red Hat, according to IBM executives.
IBM CFO James Kavanaugh told analysts Monday the opportunities for the Raleigh-based open source software firm IBM (NYSE: IBM) acquired in 2019 keep growing. IBM is a “fundamentally different company” with Red Hat — and AI will further propel Big Blue’s transformation, Kavanaugh said while speaking at the Goldman Sachs Communacopia + Technology Conference.
He said there are untapped opportunities for Red Hat, particularly in Gen AI. “We’re at the early innings of that long-term future growth factor overall,” Kavanaugh said.
But one big disruption that factors in is Broadcom’s recent buy of VMware. The deal is “forcing” enterprise clients to make platform architecture decisions between virtualization and containerization.
“And when you think about the power of IBM plus Red Hat with our Red Hat OpenShift virtualization, plus containerization, plus our Gen AI platform with Watson X, plus a consulting business at scale that can do the application modernization — that's why clients are coming to us with extreme interest around a growth factor that I think will play out for multiple years, and we're excited about that,” he said.
Kavanaugh told analysts the company's strategy has been consistent since its buyout of Red Hat.
When IBM announced the Red Hat deal in 2018, “we saw a very strategic pivot of where the market was going to go around hybrid cloud and around AI,” he said. At the time, Red Hat OpenShift was “basically a $100 million ARR book of business.”
Now it’s north of $1.3 billion.
“That is a go-to-market leverage of how we run that playbook inside IBM,” he said.
IBM executives have made no secret of the fact that they see huge opportunity for AI within the Red Hat portfolio.
“We want to use the power of open source to do with AI what was successfully done with Linux and OpenShift,” CEO Arvind Krishna said in a statement released in conjunction with the company’s annual THINK conference earlier this year. “Open means choice. Open means more eyes on the code, more minds on the problems, and more hands on the solutions. For any technology to gain velocity and become ubiquitous, you’ve got to balance three things: competition, innovation and safety. Open source is a great way to achieve all three.”
IBM's next earnings report is Oct. 23. The company's shares have risen 26 percent year to date, closing at $203.53 Monday. IBM has one of its largest campuses in RTP. Red Hat is headquartered in Downtown Raleigh.
