Feeds

Ellison's venomous tongue devastates Red Hat shares

Thanks a lot, Larry

Boost IT visibility and business value

Investors seem to be taking Oracle chief Larry Ellison as seriously as he takes himself. They've crippled Red Hat shares today simply because Oracle rolled out discounted support for Red Hat's server operating system.

Shares of Red Hat were down 26 per cent, at the time of this report, to $14.35. That's a hell of a drubbing, when you consider that Oracle's support play is thus far mostly talk.

Ellison yesterday unveiled a three-tiered support model for Red Hat Enterprise Linux. The support service starts out at $99 per year for a "basic" service and runs up to $2,000 for "premier" service. By contrast, Red Hat's support packages range from $349 to $2,499.

Oracle has rightly played on one of the industry's worst kept secrets. Red Hat charges a heck of a lot for support, especially when you consider that many open source savvy types find their own fixes. But Red Hat has not had much competition, so why shouldn't it try and milk its customer base for all their worth?

Rather than bothering with its own version of Linux, Oracle has decided to hit Red Hat where it counts. We predicted as much two weeks ago, and a number of you wrote in and called us mean names.

The reaction to Oracle's obvious play is nothing short of astonishing.

Investors have spent the last few months pushing Red Hat shares higher and higher as the company posted a couple quarters of better than expected earnings. Late last month, Red Hat sat at $26 per share.

Red Hat, however, has always underwhelmed careful observers with its inability to make all that much money off Linux. Hardware makers such as IBM, HP and Dell do just fine, as does VMware - $600m per year in revenue - which does little more than let you run multiple copies of Red Hat on a server.

But Red Hat investors have been easily impressed over the years, and are apparently easily unimpressed as well.

Jason Maynard, an analyst at Credit Suisse, suffered a religious experience at the hands of Ellison. His Red Hat price target collapsed to $14 from $29 per share on the basis that Oracle's support plan "is likely to create pricing pressure and some modest customer attrition."

Why the brash price cut for modest attrition, Jason?

The fact of the matter is that Oracle has a lot of work to do proving that this Red Hat support thing is more than a publicity stunt.

Many of you will remember the effect that Sun's application server machinations had on BEA's share price years ago. Sun warned that it would give away its application server, and investors pounded BEA, fearing that it would have no sales in a couple weeks time. Well, here we are years later, and Sun's place in the application server market is almost invisible and BEA still sells plenty of WebLogic.

Will Oracle be the first name that pops into Linux customers heads for support? We doubt it. Does Red Hat need a kick in the pants? Yes. And watching its market cap dissolve should do the trick. ®

Maximizing your infrastructure through virtualization

More from The Register

next story
Stick a 4K in them: Super high-res TVs are DONE
4,000 pixels is niche now... Don't say we didn't warn you
BBC goes offline in MASSIVE COCKUP: Stephen Fry partly muzzled
Auntie tight-lipped as major outage rolls on
Philip K Dick 'Nazi alternate reality' story to be made into TV series
Amazon Studios, Ridley Scott firm to produce The Man in the High Castle
iPad? More like iFAD: We reveal why Apple fell into IBM's arms
But never fear fanbois, you're still lapping up iPhones, Macs
Bose says today is F*** With Dre Day: Beats sued in patent battle
Music gear giant seeks some of that sweet, sweet Apple pie
There's NOTHING on TV in Europe – American video DOMINATES
Even France's mega subsidies don't stop US content onslaught
You! Pirate! Stop pirating, or we shall admonish you politely. Repeatedly, if necessary
And we shall go about telling people you smell. No, not really
Too many IT conferences to cover? MICROSOFT to the RESCUE!
Yet more word of cuts emerges from Redmond
Joe Average isn't worth $10 a year to Mark Zuckerberg
The Social Network deflates the PC resurgence with mobile-only usage prediction
prev story

Whitepapers

Implementing global e-invoicing with guaranteed legal certainty
Explaining the role local tax compliance plays in successful supply chain management and e-business and how leading global brands are addressing this.
Consolidation: The Foundation for IT Business Transformation
In this whitepaper learn how effective consolidation of IT and business resources can enable multiple, meaningful business benefits.
Application security programs and practises
Follow a few strategies and your organization can gain the full benefits of open source and the cloud without compromising the security of your applications.
How modern custom applications can spur business growth
Learn how to create, deploy and manage custom applications without consuming or expanding the need for scarce, expensive IT resources.
Securing Web Applications Made Simple and Scalable
Learn how automated security testing can provide a simple and scalable way to protect your web applications.