Morgan, you still holding/trading Red Hat? I just pulled this off Bloomberg:
Red Hat Shares Could Fall as Novelty Wears Off, Analysts Say
Durham, North Carolina, Aug. 22 (Bloomberg) -- Shares of Red Hat Inc., which is betting it can popularize a free computer operating system that competes with Microsoft Corp.'s Windows, could tumble in the next few months as the novelty of the first public Linux company wears off, analysts said.
Since the company first sold shares to the public on Aug. 11, its stock has more than quadrupled, giving the company a market value of $4.55 billion. Friday, shares fell 3 3/16 to 68 1/8. Red Hat is the first company to go public that sells a commercial version of Linux, a free operating system that's used to run powerful corporate computers, or servers.
While Microsoft executives said in an internal memo late last year that Linux is a significant revenue threat to its Windows NT operating system, Red Hat is unlikely to pose a threat to the world's largest software maker, analysts say. That's because anyone can download Linux free from the Internet rather than paying Red Hat. Dozens of rivals such as Caldera Systems Inc. and TurboLinux Inc. are also muscling in on the action. ''Linux's growth and popularity does not translate into popularity for Red Hat,'' said Matthew Nordan, an analyst at Forrester Research, a Cambridge, Massachusetts-based technology research company.
Small Market
Linux was the fastest-growing server system last year, when the Durham, North Carolina-based company had about 56 percent of commercial Linux shipments.
Those figures don't translate into a lot of revenue for Red Hat, however. The money-losing company had revenue of $10.8 million for its fiscal year ended Feb. 28. ''I think we'll probably see people stop and assess (whether) Red Hat (can) produce the revenue that's expected for a company of that size,'' said Dan Kusnetzky of market researcher International Data Corp.
Red Hat declined to comment.
Even though Linux use is growing quickly, the commercial market is still fairly small, according to IDC's figures.
Linux revenue for servers and personal computers was $35 million last year, according to IDC. That compares to $2.5 billion for Unix-based software.
Understating the Numbers?
Linux supporters argue that IDC's numbers are too low. ''They vastly understate the Linux numbers,'' said Larry Augustin, chief executive of VA Linux Systems Inc., which makes hardware that runs Linux and who says his company is looking into an initial public offering. Still, he said, ''It's really tough to get good data for Linux.''
Linux was created 1991 by Linus Torvalds, then a student at the University of Helsinki, Finland, as open source software. That means that anyone can download it from the Internet and tailor the program to their needs. That also makes Linux usage difficult to track.
The program has gained thousands of impassioned adherents among programmers, students and scientists. Linux zealots believe that open software codes promote innovation and allows people to choose which Linux variations are best. Linux is also a more stable computer program than Microsoft's Windows NT, say analysts and programmers.
Unlicensed ''When you're dealing with Linux, you're dealing with a counterculture,'' said Rob Malda, founder of Slashdot.org, a Web site that's a top outlet for Linux news. ''Most of the community realizes Red Hat is between a rock and a hard place: They have to release the code for free, but they have to make Wall Street happy.''
Open source software can't be licensed, unlike software programs sold by Microsoft and others. That poses a risk to Red Hat because a company can purchase one Red Hat Linux program and copy it onto every computer it owns. ''If you just replicate Microsoft's software, that's called software piracy,'' said IDC's Kusnetzky. ''If you replicate Red Hat's software, you're doing just the right thing in the Linux community.''
Red Hat is able to sell the free program by adding technical support and making the software easier to install on computers Still, because Red Hat can't license the software, it allows people to download it for free from its Web site.
Expand Its Services
Red Hat plans to expand its Linux-based services, which accounted for 7.2 percent of its sales for the fiscal year ended Feb. 28. Red Hat's strategy is to boost its revenue by using the software to sell more services, such as installing the program or tailoring it for companies, analysts said. ''They expect over time technical support to be a larger total chunk of revenue,'' said Forrester's Nordan. ''To me that's bad, because these companies have much worse margins than those in software sales.''
Red Hat has one or two-year joint marketing agreements with several top technology companies including International Business Machines Corp. and Compaq Computer Corp. Those agreements may be at risk if Linux gains more popularity, said analysts. ''The big challenge for these start-up companies is the major systems vendors (such as IBM and Compaq) are going to get into those services, too,'' said Dwight Davis, an analyst at Summit Strategies. ''They have staffs, worldwide reputations. I'm not really optimistic about other startups in this space.''
Backlash?
Red Hat's success may imperil the company's relationship with the programmers who work on the program and maintain the source code. ''The Linux community has a schizophrenic attitude,'' said IDC's Kusnetzky. ''They want to see Linux used broadly, but on the other hand they don't want anybody to make money on it because it's open source and free.''
One of Red Hat's strengths today is its brand name. That reputation could be tarnished if Linux programmers decide that Red Hat is becoming too much like Microsoft in trying to dominate the Linux market. ''People want to see more multiple vendors out there,'' said VA Linux System's Augustin. ''That's the whole appeal of Linux.''
NYSE/AMEX delayed 20 min.
Teflon |
