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IBM Ace in the Hole Could Save the Stock

Last Updated September 23, 2020 1:11 PM
Gerelyn Terzo
Last Updated September 23, 2020 1:11 PM

A lot of things went wrong with IBM’s Q3 earnings report, ultimately slashing 6% from the stock in the past two days. The one thing that went right, however, was Red Hat, Big Blue’s blockbuster $34 billion cloud-focused acquisition that closed over the summer . IBM’s legacy business, meanwhile, is a stumbling block, as evidenced by five straight quarters of declining revenue growth . The cloud, which is where Red Hat comes in, was a bright spot, with an 11% jump in Q3 sales to $5 billion. If ever the writing was on the wall for a company to make a change at the helm, it’s in the halls at IBM.

ibm chart
Source: Yahoo Finance

Red Hat Chief’s Wish Is IBM’s Command

Jim Whitehurst remains the chief executive of Red Hat , but he is not the boss at IBM. Ginni Rometty is, and she has been in the top spot at the IT giant since 2012. And while Rometty believes that IBM and Red Hat together pose a one-two punch to rivals such as Amazon and Microsoft, the latest earnings report proved that the cloud business really is the star. That’s why the board might want to consider Whitehurst for the top job as their best hope to transform the company from IBM Watson, which incidentally is available on the IBM cloud, into a cloud-based tech leader of the future.

Source: The Wall Street Journal

Whitehurst still manages the Red Hat team and seems to have adjusted to his new role as not being the top dog just fine. He explained the different climates of the two organizations  during a recent speech he gave, explaining:

“Not to pick on my new employer, but it’s funny. I’ll say we should start to do this in front of someone from IBM, and they’re off doing it. And then I’ll say it at Red Hat, and [they’ll say] he was just off his rocker that day.”

That’s because IBM knows that times have changed, and they are having a difficult time bringing their dinosaur of a company into the cloud era. Whitehurst appears to take a “hands off” approach to management, which has worked for his Raleigh, N.C.-based company just well. Whitehurst values innovation over efficiency, which could just be the change that IBM needs to see. The Red Hat chief seems content with his role “to catalyze, not direct,” as he describes it, adding:

“I don’t do much. I just stay out of their way.”

Well, maybe it’s time for that to change. Otherwise, more investors could abandon a sinking ship in addition to the ones who have already bailed.