Analyst reverses stance on Red Hat threat
Reports of death greatly exaggerated
Comment The Wall Street analyst whose inaccurate forecasts sparked prophecies of doom for Red Hat is back, but this time she's making a much more upbeat assessment of the company.
Jeffries & Co's Katherine Egbert has re-installed Red Hat as Wall Street's Linux wunderkind by saying the dire threat to Red Hat of rival support from Oracle, and a Linux sales tie-up between Microsoft and Novell, have failed to materialize.
Egbert now expects a strong finish to Red Hat's year with next month's launch of Red Hat Enterprise Linux 5 fuelling a cycle of customer upgrades.
She is raising her target price for Red Hat's stock a whoppping 43 per cent to $30.
Which is interesting, because it was Egbert who downgraded Red Hat's price nearly 13 per cent last October to $21 when she midread signs of Oracle's Unbreakable Linux Network (ULN) as evidence the database giant was preparing its own open source stack.
On what does she base her change of heart: the very same "checks" that fired up the Oracle rumor mill last October and lead to wild speculation of an "Oracle Linux". Egbert wrote in the weeks before ULN: "Our independent checks in the past two weeks indicate that Oracle seems to be close to introducing its own software stack." That sentence helped take seven per cent of Red Hat's price and produced plenty of helpful advice from Wall Street on what Red Hat could, or should, do to hold onto bargain-hunting customers.
Now Egbert is telling investors: "Our checks indicate Red Hat Enterprise Linux 4 sales are strong... we are hearing strength both domestically and internationally."
Apart from the fact Egbert misdiagnosed the original forecast, it would be wrong to assume Red Hat's business is out of the woods. The confidence seems partly founded on the fact Oracle has yet to announce a significant ULN customer while Microsoft's deal with Novell "seems to be expanding the enterprise Linux market".
Just because Oracle has failed to announce a big customer does not mean ULN won't pique the interest of existing and potential Red Hat users. Plus, there's a new kid in town: Sun Microsystems's Solaris support undercuts both Red Hat and Oracle. Support is not entirely these companies' end game. It acts as a loss-leader to get customers hooked on Sun or Oracle, and ensure they use either Sun's Solaris or Oracle-backed Linux and open source systems, rather than remain independent by simply buying more Red Hat when they grow.
It's in the long-term - by that, I mean not the two quarters immediately after new services are launched, but probably later this year and 2008 - when we should really be able to tell if, and by how much, Sun and Oracle have succeeded in wooing users.
As for that Novell/Microsoft deal expanding the Linux market... we've had four major customers announced in quick succession during December and January, totaling more than 16,000 SuSE Linux Enterprise Server (SLES) certificates.
The timing is a little too quick given the deal was only announced in November, and that the PR approval machine on customer announcements is as slow as molasses in winter. It suggests these well-publicized wins owe more to Microsoft milking relationships with existing customers than to any genuine market expansion using SuSE and a relatively tiny number of server sales. ®
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