Jefferies: Oracle Close to Entering Linux Market, Challenging Red Hat

Red Hat (RHAT) may have a new competitor in the Linux market: Oracle (ORCL).

In a research note, Jefferies analyst Katherine Egbert says that she has heard Oracle will probably be entering the Linux market “soon,” with a “software stack” featuring Ubuntu Linux. “We have heard that Ubuntu is currently working to certify its recently introduced server OS to all [of] Oracle’s major products, including databases and middleware. The relationship between Oracle and Ubuntu seems to have come together rather quickly, and is perhaps the fallout from an attempt by Red Hat and Oracle to work more closely together. Red Hat management offered yesterday that they would continue to work closely with Oracle should such an event occur, while at the same time continuing to develop complementary technologies.”

Egbert says she thinks Oracle could introduce either a dedicated hardware appliance with a pre-loaded software stack, or a soft appliance bundle; it could happen either at the upcoming OracleWorld trade show, or at the company’s associated investor day on October 26. “While a Linux-related announcement by Oracle is likely to pressure Red Hat stock” - it’s already happening to judge by today’s trading - “we caution against a knee-jerk reaction.”

Egbert says that a dedicated appliance approach “is unlikely to targeted at the core of Red Hat’s market, and would likely appeal more to small- and medium-sized businesses that want to standardize on an all-Oracle infrastructure. The analyst adds that she has no evidence that Oracle will introduce a stand-alone version of Ubuntu Linux, which would compete directly with Red Hat’s version.

She also says any refusal by independent software companies to certify to the new Oracle stack “could create a backlash that could work strongly to Red Hat’s benefit.”

Egbert adds that “if Oracle does not make a Linux-related announcement by month end, expect to see a relief rally in RHAT shares.

Rumors that Oracle will enter the Linux market have been around for months. See:

• No Sign Yet of An Oracle Clone of Red Hat Linux, an August 16 post.
• Report: Oracle Preparing To Launch Cloned Version of Red Hat Linux, from August 15.
• Goldman’s Sherlund Sees Oracle Offering Red Hat Linux Clone, posted July 31.