Posted on 09/16/2002 10:24:52 AM PDT by Tumbleweed_Connection
Red Hat Inc. has formed a partnership with computer giant International Business Machines Corp. under which the Linux company will strike up a cozier relationship with Big Blue's hardware, services and software divisions, the companies said Monday.
Under the alliance, Red Hat's new and more expensive software, called Red Hat Advanced Server, will be sold by IBM's consulting division and run across four lines of IBM servers and mainframes.
In addition, a full line of IBM software popular with big businesses - including Web Sphere, DB2, Tivoli and Lotus - will be tweaked to run on Red Hat's version of Linux.
In noon trading on the Nasdaq Stock Market, shares of Red Hat were at $5.93, up 68 cents, or 13 percent.
The agreement addresses what has become a troubling issue for the 8-year-old Red Hat: how to make money on the Linux operating system, which is essentially available free on the Internet.
IBM, an early supporter of Linux operating system, has been able to profit from it by selling hardware to run it and services to integrate it with corporate customers' other computer systems.
Raleigh-based Red Hat has also tried to make money on services, but has been slow to come up with a profitable business model. During its most recent fiscal quarter, Red Hat reported a loss of $4.3 million.
The new agreement with IBM may be a step in a more profitable direction for Red Hat.
"We've been working with (IBM) to some degree already," said Mark de Visser, Red Hat's vice president of marketing. "But we've also been competing with them all the time in terms of their global services division - their intention was always to own the customer relationship."
Red Hat Advanced Server costs between $800 and $2,400 per server depending on the customer's need for technical support services.
IBM and Red Hat will still compete on providing services after the sale, but technical support will be shared by the two companies.
As is typical with IBM, the expanded agreement with Red Hat isn't exclusive. Big Blue remains neutral when it comes to the different Linux distributions that are available - Red Hat competitors include German company SuSE, and a handful of domestic distributions.
Red Hat officials said in June that they expect the company to break even with $22 million in sales for the quarter that ended last month, compared with $19.5 million the quarter before.
IBM and Red Hat will still compete on providing services after the sale, but technical support will be shared by the two companies.
Does Red Hat currently make more on technical support or services? If the latter, then they might be in trouble competing with IBM which has a huge Linux group now.
It's easy to hide from IBM's Global Services Division. They don't really want to mess with anybody who isn't going to bill at least $250,000 a year in services. Stay out of those places, and they will be your friend. Many, many companies make a nice living from the crumbs that IBM sweeps their way.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.