IBM International Business Machines Corp

By Angus Loten 

International Business Machines Corp.'s $34 billion deal to buy Red Hat Inc., which closed this week, boosts its standing in the hybrid cloud market.

Companies use the hybrid cloud to manage software and other systems across different cloud services and their own data centers.

The acquisition announced in October also gives IBM some traction in its effort to gain ground on cloud-market front-runners Amazon.com Inc. and Microsoft Corp., information-technology executives and industry analysts said.

Red Hat's open-source software enables IT managers to modernize older applications and run them both in data centers and across various cloud providers, among other features.

Despite early predictions that cloud services would take over every company's IT needs, in-house data centers show no sign of fading. Research and advisory firm Gartner Inc. this week said global spending on data-center systems will hit $208 billion by 2020, up 2.8% from 2019.

"Hybrid and multi-cloud is a top-of-mind issue for CIOs across many organizations," said Chirag Dekate, senior director and analyst for artificial-intelligence infrastructure and emerging technologies at Gartner.

Businesses on average use four cloud vendors for software, three for platforms and two for infrastructure, according to a survey last year of 550 corporate IT decision makers by data and marketing company International Data Group Inc. Most of these companies had shifted only about half of their IT systems and software to the cloud, continuing to use in-house data centers, IDG found.

IBM's Red Hat deal "speaks to how essential it's become for organizations deploying a hybrid cloud strategy to coordinate multiple clouds in use," said Paul Gaynor, a senior technology analyst at PricewaterhouseCoopers LLP.

Connecting separate cloud services is crucial for letting organizations put their data to work, he said, enabling them to sort, group and analyze it quickly and securely.

The deal also puts IBM in a better position to close the gap with cloud market leaders Amazon and Microsoft, though "it's still going to be an uphill battle," said Mark Sami, vice president of delivery management at SPR, an IT-services company.

The two companies were cited as the preferred vendors in over half of the IT spending intentions of roughly 800 CIOs and other high-level corporate decision makers in a survey this year by market-research firm ETR.

Through its acquisition of Red Hat, IBM is likely to benefit as more businesses are drawn to hybrid cloud strategies that offer improved flexibility and security in managing workloads -- boosting IBM's standing in the cloud market, said Tim Beerman, chief technology officer of IT-services firm Ensono.

Some industry watchers worry about Red Hat's ability to continue innovating in the open-source space under IBM, though the tech giant has said it would let Red Hat operate independently.

Write to Angus Loten at angus.loten@wsj.com

(END) Dow Jones Newswires

July 12, 2019 17:59 ET (21:59 GMT)

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