Blowing Away Billions – Is IBM Paying Too Much?

Deal Underlines Growing Might of Cloud!

On the one hand, IBM’s US$34-billion, full-cash acquisition of open source Linux pioneer Red Hat brings up the question if Big Blue is paying too much for a software company. On the other, it underlines the growing clout of the cloud.

Given that Facebook paid $$22 billion for WhatsApp and Microsoft $26 billion for LinkedIn, this is not a bad deal for IBM as Red Hat is a profitable, strong revenue-generating cloud player.

After I had accepted an offer from Cisco in 2005 there was talk that they could end up acquiring Nokia (or some such large company). That did make me apprehensive as two large companies in a business embrace could lead to staff rationalisation through big cuts.

However, on joining the Cisco workforce, it emerged that Cisco was not in the habit of buying large companies, only smaller ones complementing their portfolio. That was prudent use of its hefty cash balance.

While IBM’s purchase does appear to be at a hefty price, it has the potential to enhance its Cloud focus and strength.

G Joslin Vethakumar

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