By Asa Fitch
International Business Machines Corp. hopes to double sales at its Red Hat open-source software unit in the next three years as Chief Executive Arvind Krishna aims to restore growth at the tech titan.
Red Hat has been enjoying annualized sales growth of above 15% in recent quarters, Mr. Krishna said at the WSJ Tech Live conference, putting it on a trajectory to achieve a target of doubling revenue from the more than $3 billion it had when IBM made the acquisition, the biggest in its history.
IBM last year paid around $33 billion -- a large premium on its share price at the time -- to acquire the company. But Mr. Krishna said the growth in the next few years will show it was a smart deal.
"I think people will regard that premium as actually having underpaid," he said.
IBM in recent years has struggled as some of its historic IT services business contracted and customers flocked to cloud-computing where rivals such as Amazon.com Inc. and Microsoft Corp. have led. IBM reported declining revenue in 30 quarters over the last 10 years, and its stock price has fallen sharply, even though its sales remain gigantic, at over $75 billion a year.
Mr. Krishna has been trying to improve its prospects through a greater focus on cloud computing, where clients rent remote computing power instead of operating their own machines. In that vision, thousands of companies will migrate to the cloud in the coming years, but they will keep some equipment in-house. They also are expected to use multiple cloud providers, creating opportunities for IBM to manage the complexities of that setup.
Red Hat specializes in software that's key to IBM's revival strategy that Mr. Krishna said would deliver mid-single-digit revenue growth rates in two years.
IBM recently said it plans to spin off its managed IT infrastructure arm representing about a quarter of its employees and revenues. The spinoff plan, unveiled Oct. 8, was the company's first major reshuffling under Mr. Krishna, who took the top post in April.
Mr. Krishna said Tuesday it was more important for a company to be growing than large.
Shedding a big chunk of the company where revenue was falling should help with the turnaround. A rising topline, Mr. Krishna said, was what would get investors excited about IBM's stock.
"Growth is what the market looks at as the proxy for sustainability," he said.
Write to Asa Fitch at firstname.lastname@example.org
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