When Matt Hicks got promoted to CEO at Red Hat last summer, he not only faced the typical challenges of any new chief executive taking over from a veteran like predecessor Paul Cormier, but he was also confronted by twin tests: the macroeconomic environment and the increasing emphasis on AI.
Perhaps he’s more comfortable with the technology side, having spent 16 years at the company before moving to the corner office. But as the head honcho, he’s been dealing with the broader economy, too, and the impact it has had on everyone. His company has not been exempt.
He has also been working with IBM, the company that bought Red Hat in 2018 for $34 billion. While the relationship and rules of engagement for the most part were established by Cormier, Hicks has still had to navigate that relationship, making sure his company maintains its independence, while drawing on the parent company’s sales clout to help drive revenue.
In IBM’s most recent earning’s report, Red Hat revenue was up 8% over the prior year, 11% in constant currency, which takes into account foreign currency fluctuations. All in all, not bad for a software company right now, but it is down from its double-digit 10% growth the previous quarter.
Hicks has had to deal with a lot of competing requirements since he’s taken over, and that includes laying off 700 people, or about 4% of the company’s 19,000 strong workforce, in April.
It hasn’t been an easy first year by any means. We spoke to Hicks ahead of this week’s Red Hat Summit about how he’s dealt with the shifting landscape, the tough decisions and how he has guided his company through a period of uncertainty.
Uneasy is the head
Dealing with the macroeconomic environment is no easy feat, and he has tried several different management strategies, including the aforementioned layoffs.
CRN reported that the layoffs hit hardest in customer success and project management, sparing sales and engineering for the most part. The Register reported that some employees expressed anger and frustration about the layoffs in internal channels, especially in light of positive revenue reports.
“I know it is hard to reconcile that we are a successful, growing company and still need to take these hard actions,” Hicks wrote in a memo to employees about the layoffs.
The Red Hat layoffs could be related to the 3,900 employees that parent company IBM laid off in January and having to share some of that pain, says Holger Mueller, an analyst at Constellation Research. “It’s tough to say why, as we don’t know what financial targets Red Hat was under pressure to meet, but seeing that IBM let people go, then [presumably] the same needed to happen at Red Hat,” Mueller said.
Hicks says that he’s tried to keep the company’s remaining employees focused on what they can control to help them steer through uncertainty. “The more chaotic things get, I think as a leader, the more you can focus teams on a really clear direction or really clear opportunity. It helps them shut out a little bit of the chaos that we don’t control,” he told TechCrunch+.
He said, for instance, he can’t control inflation or rising interest rates, so he tries to focus on what the company can do to help customers. The layoffs, of course, were his decision. “We could worry about a lot of the things that we don’t control, or we could say we’re in a really unique moment with AI right now,” he said. “We have a great play; open source will be pivotal in it. I want to make sure we can invest down that path. I think it is the thing that will get us through the economic challenges, honestly.”
Hicks understands customer budgets are also tightening, so it’s up to Red Hat to prove its value. “We have a lot of areas where we can really show up, given our model as a trusted partner, cocreating really strong value with customers. I think if we do that well, we’ll be able to operate in the budgets that are out there,” he said.
Meet the parents
IBM is an immense force trying to help his company generate more revenue without getting in the way too much. When we spoke to previous CEO Paul Cormier prior to last year’s Red Hat Summit, he described the two companies’ connection this way:
“We have many partners besides IBM. So while they’ve standardized on us, we work with everyone, with all partners within our ecosystem, just as we did before [the sale].”
Hicks says that the two companies have established a clear way of working together, and that happened prior to his taking over as chief executive, and each company understands its role — although that doesn’t mean it always goes smoothly.
“I was lucky enough to basically receive a model that works. So I don’t want to say it’s not challenging because you know, at any point when you go into the field, and you’re selling with customers, and in some cases we sell with IBM, and in some cases we sell with other partners, that can always create tension,” Hicks said. “But we are IBM’s core strategy for hybrid cloud, and they are very aligned to the same enterprise use cases that we are. That makes it a whole lot easier when we show up together.”
But while some people questioned the $34 billion price tag when IBM bought the company, Gartner analyst Sid Nag says that Hicks is doing a good job managing the relationship. “Matt’s really delivered on the promise in many ways while finding the right intersection points, working with IBM, while retaining the independent, separate entity. So I think he’s balanced between those two entities very well,” he said.
Constellation’s Mueller says that from a customer perspective, Red Hat must remain neutral or risk losing customer trust. “This constant maneuvering is critical for Red Hat to continue to be perceived and remain legitimately open, and not get sucked into IBM, or worse being perceived as part of IBM,” he said.
Red Hat and open source’s role in AI
Since Hicks took the job, AI has taken a more prominent role in enterprise software, and his company aims to be part of that. Just this week, Red Hat announced Ansible Lightspeed, an AI-fueled version of the IT automation software it built in conjunction with IBM, using Big Blue’s foundational model and Watson Code Assistant.
As Hicks surveys the AI landscape, he believes that open source software and his company have a role to play to make sure there is proper governance in place.“There’s a responsibility aspect that comes to developing software of any kind, and we certainly like to look at the role we play in making sure that we provide support and security updates on current releases, so enterprises can consume it,” he said.
He doesn’t see AI being much different and hopes that the same strengths that have played out in open source software will play out in AI.
“Granted, I’m on the side of open source usually, but I feel like a lot of eyes make all bugs shallow, and in the same way, I think a lot of eyes will make unbiased data a little bit clearer. I think a lot of eyes will make the governance process stronger,” he said.
Nag says that in reality, Red Hat has lacked its own AI story to a large extent, and it needed to rely on IBM to build some of the products announced this week at Red Hat Summit including Ansible Lightspeed.
“You need that scale of compute and scale of storage,” Nag said. “Red Hat doesn’t really have that on its own. So for them to leverage Ansible capabilities and embed AI into that Ansible story, they really have to leverage somebody’s AI engine, which I think makes sense with IBM because they already belong to IBM.”
Even with all the challenges he’s faced, Hicks says he’s an optimist by nature, and he’s trying to keep his teams moving forward and focused on customers. “I wouldn’t say that it’s been easy because I feel like more things have been added every few weeks, but that at least has been my approach coming into the job and still is to this day.”