Red Hat’s New CEO on IBM, the cloud, and coronavirus
Paul Cormier couldn’t have become the leader of a major software business at a more precarious time.
He took over the reins of IBM’s recently acquired corporate software maker Red Hat on Monday amid the coronavirus epidemic that has taken a toll on nearly every company. Tech giants including Microsoft and Apple have blamed the pandemic for their failure to make as much revenue in the current quarters as they had previously promised.
So far, IBM hasn’t announced any changes to the $13.35 in earnings per share it expects this year.
In an interview with Fortune, Cormier explained that like many businesses, Red Hat is operating more on-the-fly than it has in the past because of uncertainty caused by the coronavirus.
“If anybody can tell you what their predictions are going to be one or two quarters out, they’re lying,” Cormier said.
Cormier, a nearly 20-year veteran of Red Hat, was most recently its executive vice president and president of products and technologies. As the division’s CEO, he replaces former Red Hat chief Jim Whitehurst, who is now IBM’s president.
IBM has pitched much of its future on its blockbuster $34 billion acquisition of Red Hat, which closed in July. IBM’s new CEO, Arvind Krishna, who took over from Ginni Rometty on Monday, was instrumental in Big Blue’s decision to buy Red Hat, Cormier said. The hope is that Red Hat’s popularity with developers who use its Linux operating system and newer cloud computing software tools, will revitalize IBM after years of sales declines.
But with the coronavirus hammering businesses, Cormier will have a challenge ahead leading this crucial business for IBM. Several analysts have recently said that customers may pause or cut back on IT spending, which could hurt enterprise software brands like Red Hat.
Cormier is betting that Red Hat’s business won’t be hard hit by the epidemic, because many companies rely on the software company’s IT services to run their business—even during pandemics. It’s not a nice-to-have technology product as much as a necessity for corporate IT teams.
The challenge, however, is that businesses may avoid buying Red Hat’s more cutting-edge IT tools involving a technology called containers, which developers use to create complex apps that run on multiple cloud services sold by Microsoft, Amazon, and others. IBM has cited Red Hat’s container technology as a high-growth business that it hopes will make the overall company more appealing to customers that use multiple cloud services, known in tech lingo as hybrid or multi-cloud IT.
Cormier acknowledged that many clients may temporarily pause their spending on major IT upgrades. But during this current upheaval, any business is good business, so even if Red Hat isn’t selling its newer services, that’s good enough for Cormier—at least for now.
The last time Red Hat faced a crisis as serious as the coronavirus was the Sept. 11 terrorist attacks, he said, which occurred the same year he joined Red Hat. One of the things he learned during that crisis is that vendors like Red Hat should “worry about the bill later” and cut customers who may be hurting financially some slack instead of demanding immediate payment.
One of the biggest challenges facing Cormier is that much of Red Hat’s previous financial planning was based on assumptions and data from before the coronavirus outbreak, he explained. That impacts the company’s internal department budgets and sales forecasting.
“My statement is that our historical, analytical data—what we used in the past—is out the door,” he said. “I think everyone feels that way.”
As for Red Hat’s own spending, Cormier said he’s still hiring, but not “hiring as much as we would have been.” That said, Red Hat is “not having any layoffs at all,” he stresses.
Cormier said he would spend his next few weeks preparing for Red Hat’s now-online user conference, virtually meeting all of the company’s departments he now oversees, and going over budgets and “getting the right financial models for at least the next 90 to 120 days.”
“I wish I could tell you we have a plan for the next 18 months,” Cormier said.
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