In wake of merger, IBM says Red Hat has hired 1,000 workers to handle demand

Red Hat has hired around 1,000 new employees in the past few months, as the Raleigh-based software company handles increased demand from its merger with IBM, Red Hat’s new parent company told shareholders on Thursday.

James Kavanaugh, IBM’s chief financial officer, said Red Hat’s revenue grew by around 20% in the third quarter of its fiscal year and that demand from clients for its cloud software products was strong.

Kavanaugh’s remarks came during a call with analysts on Thursday, IBM’s first since its $34 billion merger with Red Hat closed in July.

IBM said it was happy with the first results from its decision to buy Red Hat, the company’s largest-ever acquisition. IBM CEO Ginni Rometty did not participate in the call, nor did anyone from Red Hat.

“This is a substantiation and validation of the power of bringing IBM and Red Hat together, and how it is better for clients and shareholders,” Kavanaugh said. “I think 90 days into this, we are very pleased.”

He added that the growth in the headcount at Red Hat was further proof of the success of the merger. Attrition at Red Hat, Kavanaugh noted, was stable year over year.

There had been concerns initially when the Red Hat deal was announced that a potential culture clash at the two companies might lead to a rush of employees leaving. However, it is still early in the relationship that the two companies have forged.

Growth at Red Hat; revenue drop at IBM

While there was growth at Red Hat, it wasn’t all good news for IBM, which maintains a large presence in Research Triangle Park.

The company saw its revenue drop for the fifth quarter in a row. The company has pitched its acquisition of Red Hat as a way for it to compete with other tech giants in the hybrid-cloud software space and as a vehicle to turn around its slumping revenue numbers.

The hybrid cloud — a term for the way companies use a mix of on-site, private and third-party cloud services to host data and services — has become a big business for tech companies in recent years. Competitors to IBM include Amazon’s AWS and Microsoft’s Azure.

Kavanaugh said IBM had already inked 20 large deals with companies, in industries ranging from banking to retail, to use Red Hat to modernize their capabilities.

IBM’s net profit also fell, declining to $1.67 billion from $2.69 billion a year prior, a 37.9% drop.

Results from the quarter were partially dampened by accounting rules that limited the amount of Red Hat sales IBM could include in its earnings.

However, IBM’s cloud business was a relative bright spot for Big Blue, with revenue jumping by 11% to $5 billion in the third quarter, the company said.

Shares of IBM fell sharply after the company released its earnings, dropping more than 5% after the market had closed. The company’s stock price had been trending upward for the year so far, growing by around 25%.

This story was produced with financial support from a coalition of partners led by Innovate Raleigh as part of an independent journalism fellowship program. The N&O maintains full editorial control of the work. Learn more; go to

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Zachery Eanes is the Innovate Raleigh reporter for The News & Observer and The Herald-Sun. He covers technology, startups and main street businesses, biotechnology, and education issues related to those areas.