IBM sees Red Hat deal as key to robust ‘trajectory’ 

    IBM has promised its acquisition of open-source software giant Red Hat will boost earnings starting next year as Chief Executive Ginni Rometty battles to return the 108-year-old tech giant to a growth path, The Wall Street Journal reports. 

    Rometty on Friday said the combination of IBM and Red Hat would put the company on a “sustainable growth trajectory” and expand margins and cash generation starting in 2020.

    CFO James Kavanaugh told investors the company expected revenue growth of roughly 5% in the near term. IBM would also generate an additional $1.5 billion in incremental free cash flow by the end of 2021 from Red Hat, he said.

    But IBM lowered its outlook for operating earnings per share this year to at least $12.80 from a projection of at least $13.90 prior to the Red Hat deal. Kavanaugh said the reduction reflected required accounting adjustments for some Red Hat revenues. Big Blue continues to expect about $12 billion in free cash in 2019 after the purchase.

    The company hopes that adding Red Hat, which sells support and training services for its widely used version of the Linux operating system, will help it gain ground against cloud-computing leaders like Amazon and Microsoft. Amazon is the world’s No. 1 cloud provider, and Microsoft’s boom in the segment has helped make it the world’s most valuable publicly traded company. 

    IBM, in contrast, suffered 22 straight quarters of falling revenues after Rometty took over in 2012. Revenues rose for three quarters in a row starting in late 2017, thanks to fast sales of a new generation of mainframe computers, but then fell again for four more consecutive quarters.

    The $34 billion Red Hat deal is the largest in IBM’s history. Read the full story.

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