At the recent Red Hat Summit, company CEO Jim Whitehurst quipped that "flat is the new up," but he clearly wasn't referring to Red Hat. On Wednesday Red Hat announced another strong quarter, with revenue of $183.6 million for the company's second fiscal quarter of 2010.
That's a rise of 12 percent compared with the same period last year. Despite the company's against-the-grain performance in a weak market, however, it may need to invest more in its middleware business to ensure future growth.
But first, the good news. Of Red Hat's total revenue, roughly 85 percent, or $156.3 million, came from subscription revenue. That's an increase of 15 percent compared with the year-ago period. Putting this into context, IDC projects Linux subscription revenue to top $1 billion by 2012. Red Hat should claim virtually all of this at its current pace of growth.
Customers seem content to pay Red Hat for free software that they could get more cheaply elsewhere. While recent IDC data hint at hard times to come for commercial Linux vendors, it hasn't hit Red Hat. Not yet. The company is still a darling with CIOs.
And it may not for some time, with Red Hat reporting deferred revenue of $581 million, up 17 percent compared with the same period last year. The company is increasingly profitable, too. It reported net income of $28.9 million, or 15 cents a share, compared with $21.1 million, or 10 cents a share, for the year-ago quarter.
As part of its quarterly earnings call, Red Hat executives revealed a range of reasons to think its business is on track:
- All top-25 customer accounts renewed, and at 120 percent of the prior year's value. Most customers are expanding their adoption of Red Hat, and more and more are upgrading to Advanced Platform.
- Only three of its top-300 customers up for renewal didn't renew in the quarter, and two of those have returned to Red Hat after the quarter closed.
- Two deals were over $5 million, while 10 deals hit $1 million. Red Hat EMEA (Europe, Middle East, Africa) closed its biggest deal ever in the quarter.
- Of the top 30 deals, 23 included Red Hat Enterprise Linux (RHEL) Advanced Platform, and five included a JBoss component. This suggests that Red Hat's big customers are upgrading to Advanced Platform, according to Red Hat CFO Charlie Peters.
- JBoss continues to grow much faster than the core RHEL business.
- Deal length extended to 22 months from 19 months last quarter, reflecting
- One former Red Hat customer, a large financial services company (almost certainly Credit Suisse), dropped Novell's SUSE Linux and returned to Red Hat with a big order in the quarter. Credit Suisse is one of the companies Novell pulled away from Red Hat by using Microsoft-subsidized coupons, but Peters indicated that the customer had returned because of Red Hat's superior value. It appears that Red Hat is a better value than free.
- Red Hat is taking share from its competitors rather than seeing an increase in net new server purchases.
Despite the mostly sunny skies, Red Hat's slowing revenue growth remains a concern. The trend kicked off in 2005 and has continued apace since then despite a brief respite in 2007, as The 451 Group reports.
Of course, as Red Hat gets bigger, and as the economy remains stagnant, it's normal that Red Hat's revenue growth will slow.
But it's also normal that as it slows, companies like Red Hat will look for increased growth beyond their core businesses. Oracle is perhaps the most obvious example of this.
Red Hat doesn't need to get into video game consoles (e.g., Microsoft's Xbox) or hardware (e.g., Oracle's pending acquisition of Sun) or a variety of businesses far afield from its core infrastructure business. After all, Red Hat clearly has a lot of room to grow its JBoss/middleware business, and arguably needn't acquire its way to that growth.
But it does need to significantly change the way it views its channel partners.
Red Hat's traditional Linux partners are absolutely the wrong group to be selling its middleware offerings, a fact that took Red Hat some time to digest. Now, however, Red Hat seems to be getting the picture and has launched its Catalyst Program to sell turnkey open-source solutions through a growing ecosystem of value-added resellers (VARs).
Catalyst, however, is still in its infancy. It remains to be seen whether this program will stick, as Red Hat has moved away from ecosystem efforts like its Red Hat Exchange in the past.
For Red Hat's sake, it should stick with this one. Through Catalyst and other means, Red Hat needs to place more emphasis on the world outside of Linux. The company believes that virtualization and cloud computing are big opportunities, and they are, but these are mostly ways to build upon RHEL, rather than ways to extend its reach into fast-growing, diverse markets.
Red Hat is an execution machine and will undoubtedly be able to continue to grow its Linux business, and possibly to accelerate that growth again through enhanced investments in virtualization and cloud computing. But the real growth for the company is a bit higher up the stack in its middleware business.
Peters said that the company is investing significantly more in JBoss than RHEL, proportionate to the revenue each brings. That's good, but also obvious, given that Red Hat's JBoss business is comparatively small to its RHEL business. It may be time to invest even more in JBoss.
Novell reported on Thursday a 22 percent year-over-year increase in its Linux revenue, topping $40 million. That's the good news. The bad news is that overall, net revenue slumped to $216 million from $245 million for the third fiscal quarter of 2008, with every product besides Linux dropping considerably. From identity and security management (down 16 percent) to systems and resource management (down 15 percent) to workgroup (down 12 percent), Novell is in serious trouble, with at least two potential options:
Turn to the open-source community or Microsoft to fix its failing businesses.
Novell's Open Platform business, of which Linux comprises the majority of revenue, has consistently soared for several straight quarters. Though it has had hiccups, Linux has been a factor in Novell's resilience through the downturn. This is either a factor of Novell's commitment to open source or its partnership with Microsoft, or both.
Whichever it is, Novell needs more of it. Now.
Novell's Workgroup business has been underperforming for years now as the company tries to Band-Aid the declining relevance of its once-leading solutions, like GroupWise. It's time to either amputate (sell off assets) or graft new products onto the product line. Companies like Jive, MindTouch (Disclosure: I am an adviser to MindTouch), Open-Xchange, and others could fill out Novell's Workgroup product offering.
Ever the savvy operator, Novell CEO Ron Hovsepian was able to steer the company to positive growth in operating margin, but now he needs to turn around the company's revenue story. His contention that Novell's "revenue performance was similar to many companies in the software industry" is certainly not true of Novell's chief Linux competitor, Red Hat, which has thrived through the recession, even despite plummeting semiconductor sales, signaling lower overall demand for the servers and personal computers that fuel Novell's business.
That's not to suggest that everything is rosy at Red Hat. As The 451 Group reports, Red Hat's rate of revenue growth has steadily declined over the past few quarters, requiring it to take some action to kickstart growth.
Fortunately for Red Hat, the market has clearly signaled that it welcomes acquisitions, as its highest valuation in the past five years came on the heels of its JBoss acquisition. Apparently, investors would like to see Red Hat grow beyond its core Linux business.
Back to Novell. The company needs a growth strategy, and it has only found two ways to grow over the past few years: open source and Microsoft. One or the other will do. Novell's current strategy of using Linux as a loss-leader of sorts to promote its separate, proprietary products is not working.
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Microsoft CEO Steve Ballmer probably wishes his prediction of a "fundamental economic reset" wouldn't have proved so prophetic as the company Thursday reported "disappointing" earnings, with net income plummeting 17 percent, online ad sales down 14 percent, and overall sales for the year down 3 percent.
Disappointing? That's generous. The results are traumatic and point to the need for a "fundamental reset" in how Microsoft does business. Fortunately for the company, its SharePoint business offers some clues as to how it can revive its fortunes.
Despite the occasional base hit in its Xbox business and a solid line drive with SharePoint, which helped to prop up the Office business, Microsoft has been consistently striking out in its attempts to guard its Windows hegemony.
In part this is because Microsoft has failed to deliver compelling, new value to Windows customers. Vista was a disaster and the Windows 7 upgrade path for most customers, as Walt Mossberg writes, is so painful as to almost be unthinkable for most customers.
Microsoft points to a global weakening in personal computer demand as one reason for its Windows decline, but this same weakness isn't having the same effect on Apple, which showed growth in its Mac shipments and dominates the "premium" computer market, now claiming a whopping 91 percent share of all personal computer retail purchases above $1,000 in the U.S., according to NPD Group data.
Apple is winning in this market because customers really like its technology. Microsoft has failed to "wow" its prospective and existing customer base.
With both Intel and Apple reporting somewhat rosy earnings in the face of the harsh economic climate, it's clear that the problem really isn't with the industry, which is soft but not terminal. No, the problem is Microsoft.
Microsoft hasn't figured out premium value, even as Linux-powered Netbooks eat at its ability to compete profitably in the economy PC market. Its Web strategy is still disjointed and frail.
Microsoft is stuck zealously guarding its past successes at the expense of its future. The company needs Game Plan 2.0.
Microsoft CFO Christopher Liddell says, "There are some signs that we have at least seen the worst." The problem is, that "worst" (Apple, Netbooks, open-source price pressure, etc.) isn't going to leave Microsoft alone anytime soon.
It's easier said than done, but Microsoft needs to accelerate its experiments with open source. It needs to figure out new ways to reach customers, and to upsell them with more than repackaging of the same product. (Spoiler: Windows 7 Titanium Edition won't work.)
In short, Microsoft needs to reset itself to compete in the 21st Century, which promises to be the most painful thing it has done in its decades-long existence.
If it's any consolation, the company seems to be doing this with SharePoint, which continues to boom because of and not despite a weak market. SharePoint does several things right.
First, Microsoft SharePoint combines wide distribution of a basic and free product (SharePoint Services) that seeds a market for the paid version (SharePoint Server 2007).
Second, SharePoint helps companies bridge their investment in client-side Office to server-side services. This allows Microsoft to tie its strength in the client to a growing strength in the cloud.
Third, Microsoft has effectively (though still in limited fashion) used open source to augment SharePoint's value without undermining its pricing power, e.g., SharePoint Learning Kit. In other words, Microsoft is fostering open-source complements for the proprietary SharePoint core.
In these three ways, among others, Microsoft is showing that it can bridge the gap between its past and its future. But it needs a lot more SharePoint-esque strategy, and a lot less hubris. Microsoft's claims around the iPhone and other competitors have lately fallen flat.
Unless it learns from these experiences, Microsoft, too, will fall flat.
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In May, I reported on the rising fortunes of Funambol, Mozilla, and other open-source companies. Signs of "green shoots" notwithstanding, the economy doesn't seem to be getting any better, but open-source companies continue to log impressive growth as open source pervades the enterprise, as Forrester analyst Jeffrey Hammond (@jhammond) recently noted.
Importantly, according to Hammond, while open source starts as a cost-saving exercise, it often morphs into something far more strategic:
[O]rganizations tend to start [with the goal of saving money with open source]. And then what tends to happen is the more that they become comfortable with using open source, and the more that they apply it successfully, the more they start to realize that there are benefits other than cost savings that they can take advantage of. And that's when you start to see them turn from open source opportunists into open source advocates.
Those "advocates" are funding the payrolls of a range of open-source companies. Here are just a few examples of those benefiting from this enterprise shift to open source:
- The VAR Guy (@thevarguy) reports that both xTuple and Sopera are profitable. While he doesn't comment on how much they're doing in sales, profitability is, in itself, a significant achievement. (Alfresco, my company, is also profitable, and I'm sure there are others. Please let me know.)
- Likewise, an open-source authentication and identity management company, announced that it is on track to record 100-percent sales growth in 2009. We'll call that a "pre-announcement."
- MuleSource, an open-source Service Oriented Architecture (SOA) company, reported "another record for the company, with a 140 percent year-over-year increase in quarterly bookings and over 100 percent growth for the year-to-date period."
- MindTouch, not to be outdone, also issued a release highlighting its revenue growth (without giving any gee-whiz statistics but did us the favor of providing a pretty graph). More interesting, however, is MindTouch CEO Aaron Fulkerson's (@roebot) review of the various things the company has done right and wrong in commercializing its open-source collaboration project (Spoiler: favoring an enterprise build over a "community build" via stability and support is a bad idea).
(Credit:
MindTouch)
- Meanwhile, though not financial reports, it's encouraging to see Kuali adoption take off in earnest within higher education. "The colleges involved say they have the potential to achieve millions in savings while gaining more control over technology systems that are essential to the smooth functioning of their institutions." Nice.
- Also, a member of the Perl community looks to Canonical's Ubuntu in search of a solid revenue model for Perl. Interesting read, though I'd probably look to foundations that have proved their financial mettle like Mozilla and Eclipse before I'd emulate Ubuntu, however much I may respect what Canonical is doing with Ubuntu.
Unfortunately, most open-source companies are private so the "earnings" reports are somewhat self-serving and mostly unverifiable. Still, it's good to hear of growth in the midst of a weak economic climate.
Disclosure: I am an adviser to MindTouch and MuleSource. I'll gladly report on other financial successes in the open-source world if you care to send them to me....
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For those wondering whether Oracle or Red Hat is weathering the recession best, this week may have settled the question. On Tuesday the market cheered Oracle for only seeing a 5.2 percent drop in revenue, with a 7.2 percent drop in profit (absent the strong dollar, Oracle would have seen a 4 percent increase in revenue and a 5 percent increase in profit).
Red Hat? Well, on Wednesday Red Hat announced fiscal first-quarter revenue of $174 million, up 11 percent from the prior year. Subscription revenue was up 14 percent year over year to $148.8 million. The company's total deferred revenue balance is now $567.3 million, an increase of 15 percent on a year-over-year basis. Net income for the quarter was $18.5 million.
Both Oracle and Red Hat are doing well, and Oracle is obviously dealing with much bigger wads of money, but it seems clear that Red Hat's open-source model is the big winner in the recession.
In fact, on Red Hat's earnings call, Chief Executive Jim Whitehurst indicated: "Budgets remain tight and we don't see an end in sight for this. In relative terms, this is pretty good for us." He went on to call out the big differentiator for Red Hat's business: certified ecosystem.
The key differentiator for us in Linux is our certified ecosystem. Even those that are clones of RHEL [Red Hat Enterprise Linux] lack this certified ecosystem. The second differentiator is value: great service and support at a compelling price.
We have a very disciplined business model which is based on commoditizing key parts of core infrastructure. We've been laser-focused on this. Open source is particularly good at that. We'd certainly like to work with other open-source companies but they have fundamentally different business models than we have.
Repeatedly asked on the earnings call about competition from Oracle, Red Hat executives took turns dismissing Oracle's Solaris ("When customers decide to jump from Solaris they go straight to Linux, skipping OpenSolaris") and Oracle's Linux strategy ("We've yet to lose a major customer over the last year to Oracle's Linux offering. The only one to leave Red Hat in the past couple of years is Oracle itself.").
Indeed, though Red Hat's JBoss business is growing much faster than RHEL, Red Hat seems devoutly focused to RHEL's staying power in a bad economy. The reason is financial: JBoss, as Whitehurst noted, often requires a significant upfront integration cost, which makes it less palatable for CIOs looking for short-term cost savings. RHEL, on the other hand, offers immediate, short-term gains.
Even so, Whitehurst was quick to point out that JBoss will continue to grow faster than RHEL, and that it, along with other Red Hat technology like Qumranet's virtualization products, helps position Red Hat as a leading infrastructure provider to the nascent cloud-computing market. ("It's hard to imagine why anyone would build a cloud on a proprietary stack in this day and age")
With profit and revenue up, Red Hat continues to impress, especially as it's not dependent on a competitor for its revenue, which remains the Achilles' heel in Novell's otherwise bright earnings reports.
The question is whether it can grow well beyond its core RHEL business. Linux is a great foundation upon which Red Hat can build, but build it must. Today very little of its sales come at Microsoft's expense. At some point in the not-so-distant future, the UNIX-replacement business will slow and Red Hat will need more than JBoss to compete with Microsoft.
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A bad economy is good for open source, goes the increasingly conventional wisdom. However, while it's undoubtedly a good time to be in the market with a low-cost, high-value alternative to proprietary software, there are tell-tale signs that the recession isn't blessing all open-source companies equally.
Ross Mayfield, co-founder of Socialtext
For example, at the Enterprise 2.0 conference on Tuesday Socialtext founder Ross Mayfield declared, in the words of a conference attendee via Twitter, that Socialtext's first quarter "sucked" and that its "pipeline collapsed." Socialtext, once described as a highflier in a "sizzling market," has apparently come down to earth.
Or has it? Is this a one-time blip for Socialtext? While Socialtext CEO Eugene Lee announced layoffs in April as the company looked to cut expenses, Mayfield on Tuesday declared that the company's second quarter looks strong. Even the best companies can slip in a brutal market.
Or perhaps Sociatext is fighting a weakness in enterprise collaboration ROI (return on investment) and demand, rather than open source?
If that were true, one would expect all companies in Socialtext's space to be hit equally, but this hasn't been the case. During this same first quarter, Socialtext competitor MindTouch experienced double-digit growth, while Microsoft's proprietary SharePoint product also continued to boom. (Disclosure: I am an adviser to MindTouch.)
I suspect Socialtext experienced a road bump, not a barricade. The difference is that, in true open-source style, Mayfield was candid about the slip up.
Open source remains alive and well. It's important to remember, however, that this doesn't mean every open-source company will do well.
Open source is not magic pixie dust that makes bad companies good. It's not a cure for the common recession. Companies still need to execute well, regardless of their licensing strategy. And, importantly, the wrong open-source licensing model can handicap a company, making it harder to profit from a project's popularity.
The recession, in short, will sift good companies from bad, whether open source or proprietary. As for Socialtext, its fate will not be decided by a single quarter. It's in a good market with a good model. It should do fine.
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The bad news is that global server revenue is down 25 percent in the last quarter, according to IDC, with Microsoft Windows server revenue down a whopping 29 percent.
The good news? Novell reported Thursday that its Linux Platform revenue climbed 25 percent year over year in the midst of one of the worst recessions in history. Talk about Linux swimming against the economic current.
Well, it's good news for some. Microsoft, of course, won't take any comfort in Novell's numbers, especially as recent Eclipse survey data suggests that Linux is eating into its Windows server and client businesses, with 43 percent of Eclipse developers citing Linux as their preferred deployment platform (versus Microsoft's 41 percent).
It wasn't the best of quarters for Novell, either. Net revenue was down to $216 million from $236 million a year earlier, though cost cutting resulted in $16 million in net income. Novell's problem is that outside its Linux Platform and Identity Management businesses, which both grew, its other lines of business stumbled -- Workgroup was down 14 percent, while Systems and Resource Management dropped 2 percent.
Novell reported $37 million in Linux Platform Products revenue, up 25 percent compared to the same period last year. While not on par with Red Hat's continued growth -- 18 percent last quarter on a higher revenue base, -- Novell's execution on its Linux Platform business, in particular, is impressive.
Workgroup, of course, continues to deliver the biggest chunk of revenue ($79 million in the current quarter), but is also the biggest drag on Novell's brand. Workgroup is a constant reminder of the old Novell: NetWare, GroupWise, etc. I understand the reasons for keeping that revenue, even declining revenue, on the books, but it comes at a high cost to Novell's credibility.
With $1 billion in cash or short-term assets, Novell could conceivably buy relevance in this market, as it has tried in the past with its Sitescape acquisition, but thus far it has failed and throwing more money at this line of business won't likely help. Novell is an enterprise server company. Its desktop-related business is a distraction.
Novell's Linux performance, however, suggests a way forward for the company. It's called open source, and perhaps Novell's own flavor of open source (hybrid source) could be a winning strategy against Red Hat and Microsoft.
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Open source continues its march through enterprise computing, yet gets remarkably little attention in corporate earnings, a search of earnings transcripts from the last two quarters reveals.
Red Hat talks it up. So does Novell, though in very different ways. Even Google gives it a nod.
But for most of the rest of the technology industry--from Oracle to IBM to Tibco to EMC Documentum--open source may have its place in product plans, but not in corporate profit plans. A search for "Linux" reveals only marginally more references.
Mark Shuttleworth suggests that Oracle's acquisition of Sun means that open source is now front and center in technology strategy, and he may be right. But, if so, the industry has yet to acknowledge it.
We have not yet arrived at the point where open source is the common currency of corporate strategy within the technology sector. It's still a function of lower-level product strategy, and not the game changer it promises to be.
At least, that's how I read open source's virtual anonymity in corporate earnings calls. How do you interpret it?
Follow me on Twitter @mjasay.
Update (8:13 PM on 3/25/09): Savio Rodrigues offers a more compelling reason than I do below for Red Hat's precipitous drop in net income: "interest income (on money sitting in bank) went from roughly $18 million down to roughly $5 million year-over-year." This follows on Rodrigues' excellent analysis of why Red Hat's net income is so far out-of-whack with its peers. Definitely worth reading.
Update (6:17 AM on 3/26/09): I heard back from Red Hat on the reason for the drop in net income. "The drop was due to both interest income down and the fact that we had a one-time gain last year on the sale of MySQL." Sorry for any confusion my misreading of the financial tea leaves may have caused. The drop in net income does not stem from heightened costs of selling due to the recession.
Red Hat's fourth-quarter earnings suggest that while demand for its open-source products remains red hot, selling the Red Hat value proposition increasingly demands heavy lifting as the economy worsens.
Red Hat reported a 27 percent drop in its net income over the same quarter last year, dropping to $16 million from $22 million. That's the bad news, as it suggests that Red Hat is having to spend more money to earn income.
The good news is that Red Hat profit beat analyst expectations, landing at 22 cents per share instead of the expected 20 cents per share, as Reuters reports.
The even better news is that revenue grew to $166.2 million, an 18 percent increase from the year ago quarter, but only 1 percent from the prior quarter. Of this revenue, subscription revenue accounted for $139.4 million, up 14 percent year-over-year and 3 percent from the prior quarter.
In the earnings call, Red Hat highlighted significant achievements, despite the challenging environment:
- Billings exceeded $200 million;
- More than 100 deals greater than $250,000;
- Fiscal year 2009 revenue hit $652.6 million;
- In fiscal year 2009, Red Hat notched 25 percent revenue growth, 24 percent non-GAAP operating income growth, and operating cash flow of $236 million;
- The company ended its fiscal 2009 with cash and cash equivalents and investments of $846 million and essentially no debt;
- Red Hat renewed 100 percent of its top 25 customers each quarter in fiscal 2009.
These are very impressive achievements. Along with Oracle and IBM and few others, Red Hat is demonstrating that it can swim upstream in a sluggish economic climate. The economy continues to separate wheat from chaff, and Red Hat clearly qualifies as the former.
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Novell's $340 million lifeline from Microsoft appears to be losing its potency.
Although Microsoft originally gifted Novell $240 million to help fight Red Hat, and later added another $100 million to the pile, it doesn't seem to be enough to revive Novell's fortunes, as the company reported disappointing first-quarter earnings and a slide even in its Linux business, which had been growing fairly well.
"The pipe fell apart," declared Novell CEO Ron Hovsepian, as The Register reports. That's an intriguing statement, as other open-source companies with which I work have seen their pipelines grow tremendously, as enterprises look to open source to save money and boost productivity through the downturn.
Novell now plans to cut prices aggressively to increase its market share, according to Hovsepian.
Part of the problem, however, is that Novell isn't really an open-source company, and it doesn't pretend to be one. Most of its revenue comes from proprietary software, and that software didn't deliver in the first quarter.
Novell's Workgroup division--its largest, in terms of revenue--plummeted 9 percent to $81 million for the quarter. Identity, Access and Compliance Management, arguably one of Novell's strongest product lines, also skittered to an 8 percent decline.
Linux invoicing, which had been the standard bearer for Novell, dropped through the floor to land in the basement, with a 42 percent decline, at $23 million. The reason, as ZDNet's Larry Dignan captures, is that Microsoft couldn't deliver big deals for Novell in the quarter, according to Novell CFO Dana Russell:
As we have stated before, our Linux business is dependent on large deals, which may result in some fluctuations of our quarterly invoicing. This quarter, we did not sign any large deals, many of which have been historically fulfilled by Microsoft certificates. Today, we have invoiced $199 million, or 83 percent, of our original $240 million agreement.
It's true that Open Platform Solutions, of which $35 million was Linux-related, grew 24 percent, compared to the first quarter of 2008, and that's excellent growth, but it wasn't enough to save Novell's quarter or to improve its trajectory, going forward.
Nor will it help that of the roughly 100 jobs Novell recently terminated, Novell reportedly trimmed 20 percent, or 30 people, from its OpenSuse ranks, according to Linux Magazine. Novell's OpenSuse community lead, Joe Brockmeier, has tried to put a positive spin on these layoffs, but with OpenSuse providing an early testbed for some of the technology that feeds into Suse Linux Enterprise Server, this can't be positive for innovation in Novell's Linux business.
But the larger concern is Novell's continued dependence on Microsoft to sell Suse Linux. I have suggested in the past that Novell's reliance on Microsoft appeared to be waning. It appears that I was wrong, as The Register suggests:
Of the $240 million in coupons for Suse Linux that Microsoft acquired as part of its partnership with Novell, only $199 million of them have been invoiced....Hovsepian said it was mostly Novell's job to chase down Windows shops, and get them to activate licenses.
Why Microsoft prepaid $25 million for a new batch of coupons when it still has $41 million in coupons already acquired on behalf of Windows shops is clear: both Microsoft and Novell suspected Novell would need the dough in (the fiscal first quarter) to prop up its numbers.
That should be Novell's concern, not Microsoft's. If Microsoft feels any compunction to assist Novell, it's certainly not to help prop up Linux, but rather to try to hurt Red Hat. This isn't the basis for sound, long-term strategy.
And guess what? It's not working.
On Friday, Piper Jaffray reiterated its Buy rating on Red Hat's stock, noting that "Our survey of 89 domestic Oracle applications customers indicates that Red Hat is gaining IT budget share" and that "we see ongoing evidence that Red Hat's low-TCO (total cost of ownership) message will play well in this challenging macro environment."
That environment hasn't been good for Novell's overall business, but it's helping fuel Red Hat's. Perhaps Novell should be looking to Red Hat, not Microsoft, for clues as to how to rejuvenate its business. The industry could use Novell as a stronger Linux player. Microsoft won't be the source of that strength.
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