Red Hat: What me worry?

Red Hat: What me worry?

Summary: When Red Hat holds court with financial analysts later today to discuss the company's fiscal third quarter results the conversation is likely to go like this:Analyst: What is the impact on Oracle's Unbreakable Linux on your business? How can you compete?

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TOPICS: Open Source
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When Red Hat holds court with financial analysts later today to discuss the company's fiscal third quarter results the conversation is likely to go like this:
Analyst: What is the impact on Oracle's Unbreakable Linux on your business? How can you compete?

Red Hat exec: We're not seeing any direct threat. Billings are looking up.

Analyst: What about this Microsoft-Novell partnership?

Red Hat exec: Can't we talk about our quarter just a little here?

And then you'll get a lot of questions about Red Hat's forecast for future billings so analysts can surmise the answers on their own. Red Hat, which provides Linux and open source software, is expected to report earnings of 12 cents a share on sales of $104 million.

The competition is circling around Red Hat, but it's too early to see the effects. Are folks going to jump from Red Hat? Possibly, but it won't be this quarter. Or the next.

How do I know? Let's evaluate what those aforementioned Red Hat killers are saying lately. Oracle said it had 9,000 downloads of Unbreakable Linux in the first 30 days after announcing it. Big question is what happened beyond that 30 days and were the downloads front-end loaded indicating waning interest.

As for the Microsoft-Novell deal, the two parties announced that three financial services firms are getting SUSE Linux Enterprise Subscription certificates from Microsoft.

What's all of this mean for Red Hat? Probably a decent quarter after a lot of worrying. What's it mean for technology buyers? Some serious leverage as Red Hat subscriptions expire in a few months.

UBS analyst Heather Bellini said it will take about six months to see any dent in Red Hat's business.

"Our conversations with Linux channel partners indicate that Red Hat's business in the third quarter was largely unaffected and any impact will take at least six months to play out. While the resellers were equally split on whether Red Hat will have to lower prices, we believe pricing pressures are inevitable as customers will at the very least use Oracle's pricing to negotiate deeper discounts."

WR Hambrecht analyst Robert Stimson said in a research note that Red Hat's products are "sticky and deeply embedded within its enterprise customers."

"We are expecting a roughly in-line quarter to both our and Street estimates, as we believe recent concerns over competitive pressures from Oracle and
Novell/Microsoft have been overblown. We believe investors will be most closely focused on billings growth as the most meaningful metric to determine any
negative effect from competition, as well as management's commentary on the JBoss integration process."

In fact, the integration of open source software maker JBoss is the more immediate worry about Red Hat. Rumors have swirled for weeks about Marc Fleury leaving, but thus far no formal announcement.

The skinny from Stimson:

"Comments from JBoss head Marc Fleury in late November
regarding a perceived lack of investment from Red Hat raised investors' concerns about the integration of the JBoss business into the Red Hat stack. Shortly
after, Fleury took paternity leave, which some investors read into as a sign of discord. Although we believe these concerns are overblown, we will be looking closely at commentary from management regarding the progress of the JBoss integration."

Topic: Open Source

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4 comments
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  • Not every deal made by MS has or will result....

    ... in a wallet-filling shower of money, not even for themselves.

    Why do you have to include that dirty word (guess) in every article?
    Not every computing person or company on this planet cares about MS, MS is often
    not even relevant under the current headline! (Surprise surprise!)
    Mikael_z
    • The Novell deal is significant for Red Hat

      SuSE is the other commercial Linux, and Novell had no better success marketing than SuSE when a company, or than Novell selling anything else.

      Now the Microsoft sales staff has been deputised to help sell SuSE, so it will be much more difficult for Red Hat to achieve a commercial Linux monopoly.

      My view, that makes SuSE more a threat than Oracle. Anyone obtaining software or services from Oracle has to deal with... Oracle. That makes the most likely market organizations which already have Red Hat and Oracle (and a knowledgeable and determined IT staff).

      Novell now appears likely to compete in a lot of Red Hat's entire market.

      Then, Microsoft is also a competitor with Linux in the server market. The role of tools for easy migration is significant, as shown by past competition with Novell. And Microsoft will have good tutelage in Linux as the company makes those tools.

      So behind Novell is an even larger threat to Red Hat, cooperatively entering a market that it might win.

      So both Novell and Microsoft are worth mentioning in this article.
      Anton Philidor
  • Red Hat Worry?

    Novelle should be the one who is worried. They are the one dancing with the devil. Anyone who considers history is wary of "the beast".
    While a few NBM'ers may switch to SuSe, many more true FOSS users will switch from disgust with SuSe to Red Hat.
    A close inspection of the licenses will enlighten anyone as to the possibilities here, despite all the FUD being liberally spread across the internet.

    http://www.cybersource.com.au/cyber/about/comparing_the_gpl_to_eula.pdf

    http://www.securityfocus.com/columnists/423?ref=rss
    Ole Man
  • Switch from RHEL...?

    As someone who runs (and has run for a few years) multiple redhat servers for a living, with a few running oracle 9/10 ... Why on earth switch when it runs just beautifully on rhel 4? (NTM, I've never had to call redhat for support). The whole thing is just plain dumb/silly. (So is the soon-to-be killed ms/novell dealie, as it goes over the heads of all the community oss developers, who are slightly pissed, and who can blame them when ms plans to make $ from them and spreads yet more FUD.) .. hooah. & merry xmas. lol
    jamie@...