RALEIGH, N.C. — Robert Stimson of analyst firm W.R. Hambrecht initiated coverage of Red Hat with a bang on Tuesday.
Despite facing threats from giant Oracle and the strange alliance between former enemies Microsoft and Novell that obviously targets Red Hat, the Hatters and their stock were labeled as a “buy” with a target stock price of $21.
Red Hat (NASDAQ: RHAT) climbed above $17 on the news. Red Hat also announced a major partnership for its new JBoss middleware subsidiary at a trade show in Europe.
And to make the picture seem even brighter for Red Hat on Tuesday, the honeymoon between Novell and Microsoft suddenly ended. After Microsoft Chief Executive Officer Steve Ballmer said last week that Linux infringed on Microsoft patents, Novell CEO Ron Hovsepian posted an open letter on the Novell website countering Ballmer’s claim.
If The Hat Fits —
In his report on Red Hat, Stimson came out strongly in favor of the open source movement as an alternative to Microsoft and Oracle.
“If the hat fits,” Stimson’s report began. It does as a buy — he wrote.
“Our investment thesis is predicated on the fact that software companies must offer solutions that provide the purchaser with tremendous ROI potential or enhanced functionality driving a competitive advantage in the marketplace,” Stimson said. “Accordingly, we believe that there are still enormous returns on investment opportunities associated with the Open Source movement. The ROI potential of open source solutions is too great to be ignored by CIOs, in our view, and we believe open source solutions will increasingly become accepted into the mainstream over time.
“The recent announcements from Oracle — and Microsoft create an interesting dilemma for investors, however we believe that Dell, IBM and HP, etc., will stay the course and continue to support Red Hat, and the recent headlines have provided a unique opportunity for investors to ‘get involved’ in the Linux story,” he added.
Investors did get involved, driving down Red Hat shares to a 52-week low. Red Hat countered with a stock buyback plan and an announced move to the less volatile New York Stock Exchange from the tech-heavy NASDAQ.
Now, buyers are coming back as the fog clears from the Oracle and Microsoft deals. Some analysts have said Oracle’s deal to undercut Red Hat’s pricing on subscription services (where Red Hat makes its money) will only affect a small percentage of Red Hat revenues and customers. The Novell-Microsoft deals involves SUSE Linux, which is not nearly as popular as Red Hat’s brand. And the two companies are off to a tough start.
Red Hat felt confident enough last week to reject a similar deal from Microsoft.
In his report, Stimson pointed out that the JBoss acquisition could prove to be very beneficial to Microsoft, even though the deal angered Oracle. Oracle dominates the server software space in which JBoss is a growing threat, and the JBoss deal is believed to be one of the reason Oracle’s top guy Larry Ellison turned on his Red Hat partner.
“One of the key opportunities for Red Hat is the company’s ability to diversify beyond its operating system roots. We believe the JBoss acquisition and its application server platform is a nice starting point, and may allow the company to further expand its open source offerings beyond basic systems management applications within the enterprise,” Stimson said.
For more of his report, see: www.wrhambrecht.com/research/entsoft/rhat.html
Novell’s CEO Fires Back
Meanwhile, Novell’s Hovsepian made it clear in an “Open Letter” to the open source community that he wasn’t about to accept Ballmer’s patent comments.
“We disagree with the recent statements made by Microsoft on the topic of Linux and patents. Importantly, our agreement with Microsoft is in no way an acknowledgment that Linux infringes upon any Microsoft intellectual property,” he wrote. “When we entered the patent cooperation agreement with Microsoft, Novell did not agree or admit that Linux or any other Novell offering violates Microsoft patents.”
The Microsoft deal led some in the open source community to accuse Novell of selling out. Not so, Hovsepian said.
In closing, we wish to be extremely clear that Novell is committed to protecting, preserving and promoting freedom for free and open source software,” he explained. “We recognize that the community of open source developers is essential to all our activities in Linux, and we welcome dialog with the community as to how we can continue to work together toward these common goals.”
To read the letter, see: www.novell.com/linux/microsoft/community_open_letter.html
For Ballmer’s comments about Linux infringing on Microsoft, see: blog.seattlepi.nwsource.com/microsoft/archives/108806.asp?source=rss