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Big Blue finds green shoots in Red Hat mix

IBM’s latest quarterly filing shows early signs that enterprises are buying into its OpenShift and RHEL-powered cloud strategy

IBM has reported net revenue for the fourth quarter of 2019 of $4.0bn, 10% lower than for the same quarter in 2018.

Its latest quarterly filing takes into account the acquisition of Red Hat, which was completed in July 2019. The company said Red Hat has helped to boost its services businesses, driving 21 customer deals worth more than $10m each.

“We ended 2019 on a strong note, returning to overall revenue growth in the quarter, led by accelerated cloud performance,” said Ginni Rometty, chairman, president and CEO of IBM.

“Looking ahead, this positions us for sustained revenue growth in 2020 as we continue to help our clients shift their mission-critical workloads to the hybrid cloud and scale their efforts to become a cognitive enterprise.”

According to a transcript of the earnings call posted on the Seeking Alpha financial blogging site, Red Hat delivered $1bn in revenue for IBM.

In the transcript, Jim Kavanaugh, senior vice-president and chief financial officer (CFO) of IBM said: “The next chapter of cloud will be driven by mission-critical workloads managed in a hybrid, multi-cloud environment. This will be based on a foundation of Linux, with containers and Kubernetes. This quarter we had strong performance in RHEL [Red Hat Enterprise Linux] and OpenShift.”

He said that the Cloud Paks offering, introduced in August 2019, combines IBM middleware, artificial intelligence (AI), management and security, and Red Hat’s OpenShift platform.

“Our strong performance in Cloud Paks this quarter is an example of the synergy from the IBM and Red Hat combination. As we look forward, the largest hybrid cloud opportunity is in services, advising clients on architectural choices, moving workloads, building new applications and – of course – managing them,” Kavanagh added.

As an example,  Kavanaugh said IBM was extending its partnership with Box. “Box has chosen Red Hat to help power its IT infrastructure, and Watson as its preferred AI provider for intelligent business processes. IBM and Box are also working together to deliver joint solutions focused on governance,” he added.

He reported that IBM increased revenue in its application development and emerging technologies business by over 50%, driven by OpenShift and Ansible from the Red Hat acquisition.

“Cloud and Data Platforms revenue was up 20% this quarter. This is one area we’re starting to see the synergies of bringing IBM and Red Hat together,” said Kavanaugh.

For the quarter, IBM reported cloud and cognitive software software of $7.2bn, up 8.7% from the fourth quarter of 2018. This business includes the IBM cloud and data platforms, Red Hat, cognitive applications and its transaction processing platforms.

Its Global Business Services, which includes consulting, application management and IBM Global Process Services, reported revenues of $4.2bn, down 0.6% from the fourth quarter of 2018.

Global Technology Services, which includes IBM’s infrastructure and cloud services, and its Technology Support Services reported fourth-quarter 2019 revenues of $6.9bn, down 4.8% from fourth-quarter results for 2018. Overall, IBM reported revenue for 2019 of $77.1bn, down 3.1% compared to 2018.

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