Novell Acquires SUSE and IBM Tosses In

UPDATE: Novell's quick to dismiss the Microsoft threat, saying the acquisition is to reduce impediments of Linux in the enterprise; officials also discuss the SCO indemnification issue.
Posted November 4, 2003
By

Jim Wagner


With eyes fixed on the burgeoning Linux enterprise market, networking software specialist Novell on Tuesday announced plans to shell out $210 million in cash to acquire Germany's SUSE Linux AG.

The SUSE acquisition is Novell's second major deal in the enterprise Linux space, coming just a few months after the purchase of Ximian, a Boston, Mass.-based provider of Linux desktop, management and groupware technologies.

Jack Messman, Novell chairman and CEO, said in a press conference this morning, most of the 399 employees at SuSE Linux would retain their jobs after the acquisition is completed, though some of the overlapping administrative functions would be eliminated. He emphasized the German headquarters for SuSE would remain in place.

"I want to put those fears to rest by saying that Novell is firmly committed to maintaining SuSE's presence in Nuremburg," he said.

The acquisition of the number two Linux distributor (after Red Hat) is a clear sign that companies that are deploying the Linux operating system in competition with Microsoft's Windows operating system have raised their ante.

Novell also announced a $50 million stock investment from technology giant IBM which has been aggressive about deploying servers and product lines in tandem with the Linux operating system.

Additionally, Novell plans to extend commercial agreements with Big Blue to continue markeing SUSE Linux on IBM's eServer product lines. "Both of these agreements [with IBM] will be effective when the acquisition of SUSE Linux by Novell is completed," the company said.

The deal is expected to close in January 2004.

Novell said the SUSE Linux purchase, which is a crucial component of its open source strategy shift, would allow the delivery of enterprise Linux products -- from the server to the desktop.

SUSE Linux has a major presence in Europe where it markets Linux-based operating systems and application software. The company's product line includes applications for servers, networking, data exchange, and multimedia functions. SUSE has received financial backing from IBM, Intel and Silicon Graphics .

It is also among the more popular "flavors" of Linux, noted Joe Wilcox, a research analyst who covers Microsoft for Jupiter Research (whose parent company also owns this publication). In addition, Novell's NetWare network operating system, which was popular throughout the 1990s, has been eclipsed by Microsoft's Windows Server software, Wilcox said. For Novell to increase its stake in a popular Linux distributor based in Germany, where companies and municipalities are growing more receptive to open source software, indicates "Novell is not willing to cede the network operating system market to Microsoft without a fight," Wilcox said.

Chris Stone, Novell's vice chairman, said IBM would have a roughly two percent stake in Novell after its investment and minimized speculation the Linux buy was done to compete more effectively with Microsoft.

"We didn't do this to compete with Microsoft, that's not the intention at all," he said. "Our objective isn't to go out and replace Microsoft desktops or Microsoft servers; if it happened that would be a nice side benefit.

"The objective here is to reduce impediment to Linux in the enterprise, it's that simple," he continued. "There's an opportunity here we want to take advantage of."

In April, Novell detailed its planned technological migration of its NetWare network operating system at its annual "BrainShare" user and partner conference in Salt Lake City, Utah. At the time, Novell executives said NetWare 7 will be out in around a year and a half, and will offer a suite of services, which reside on both NetWare and Linux kernels.

Wilcox noted that there are still a lot of companies out there that still run Novell's legacy NetWare software. "Novell increasing its Linux offering [through the SUSE purchase] provides a non-Windows migration path for those customers," Wilcox said. "At the same time, we see competitors of Microsoft increasingly lining up with each other in the market," such as IBM, which is "betting big" on Linux, taking a $50 million stake in the purchase.

Messman gave his thoughts regarding SCO's $1 billion lawsuit against IBM, and the indemnification policy it extended to Linux users who paid them a licensing fee to continue using the operating system.

Many software vendors have said they would not to protect its customers who use Linux if SCO manages to win the lawsuit, with the major exception of Hewlett-Packard . Messman said his company is going to issue guidance to its customers in coming weeks over its own policy.

"We call on SCO to make public the basis of its claims on Linux, and I think today's announcement is evidence we're moving forward aggressively with our strategy to support Linux," he said. "We're not holding back because of SCO's disputed and unsubstantiated claims. We have not yet had the chance to figure out what our response (to SCO's indemnification policy) is, but we will do so very quickly. I think that most people are not concerned about it."

Editor's note: SCO's President and CEO Darl McBride is scheduled to make a rare public appearance at Jupitermedia's Enterprise IT Week at cdXpo, which runs from Nov. 17-20 in Las Vegas.

-- Ryan Naraine of atnewyork.com contributed to this article.






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