Red Hat Defends Support, Plans Stock Buyback

The board of Linux distributor Red Hat has decided to buy back some of the company’s stock to shore up its share price in the wake of a competitive blow from Oracle.

Red Hat will buy back, over time, US$250 million in shares and $75 million of debt, the company said Friday.

By buying up stock and paying off some debt sooner, Red Hat hopes to recover from a 24 percent decline in its stock price Thursday, said Red Hat spokeswoman Linda Brewton.

The drop followed an announcement by Oracle on Wednesday that it would offer support for Red Hat Linux to both its customers and non-customers at roughly half the price Red Hat charges.

On Friday, Red Hat’s stock (Nasdaq: RHAT) recovered some of its Thursday decline, closing at $15.63, up $0.80 or 5.39 percent from Thursday’s close. It rose another $0.02 in after-hours trading Friday. Red Hat’s stock price fell 24 percent Thursday to $14.83 from Wednesday’s close of $19.51 before the Oracle announcement.

Red Hat CEO Matthew Szulik said Friday that Red Hat would not cut its support fees in response to Oracle’s move.

Few of Red Hat’s customers are concerned about the price of support, said Iaian Gray, vice president of global support services for Red Hat.

“The most concerns communicated to us are about how we support their infrastructure, how we work with multiple [hardware] vendors and multiple independent software vendors,” said Gray. “Nobody asks me about the price of support.”

Red Hat dispatches 2,000 engineers operating out of 12 Red Hat support centers to customers, offering a “follow-the-sun” strategy of support around the world and around the clock, Gray said.

Although Oracle has 100 Linux-certified engineers, it often confers with Red Hat engineers to deal with difficult support cases, he said.

Oracle has been criticized for its move to undercut Red Hat. Dave Dargo, chief technology officer and senior vice president of strategy at open-source database provider Ingres, wrote in a blog posting Thursday that Oracle’s move could undermine Red Hat’s business model.

“Oracle is taking the work that Red Hat is doing and charging less for it in an attempt to bypass Red Hat as a vendor. I’m not sure how long that model, if successful, can last,” Dargo wrote. He argues that if Oracle undercuts Red Hat, a weakened Red Hat could be forced to leave the market or be acquired, which would reduce competition.

But Oracle has its defenders, such as Jim Stallings, general manager of IBM’s System z line of mainframe computers, which can be configured to run Red Hat and other Linux operating systems.

“The customer gets to choose…and anytime you expand the options for customers, that’s a positive thing,” Stallings said.

-Robert Mullins, IDG News Service (San Francisco Bureau)

Related Links:

• Oracle Sets Sights on Red Hat With Linux Tech Support

• Red Hat Vows Better Instructions for Beta OS

• Red Hat, Agilysys Team on Open-Source Services

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