Update: Novell buying SUSE Linux to expand its Linux reach

The deal is worth $210M and is expected to close by January

Just three months after it bought Linux desktop vendor Ximian Inc. (see story), Novell Inc. surprised the Linux world today by unveiling plans to acquire SUSE Linux AG. In an announcement this morning, Novell said it's buying SUSE for $210 million in cash to help expand its foothold in the Linux marketplace. In April, Novell announced plans to adopt Linux as a migration path for its NetWare network operating system (see story). Jack Messman, CEO of Novell, said in a statement that the acquisition is part of his company's response "to customer demands for open, standards-based computing ... and Linux is an increasingly important part of that strategy." "The acquisition of SUSE Linux will complete Novell's ability to offer enterprise-class Linux solutions to our customers from the desktop to the server," he said. "Novell is bringing our significant resources to bear to help customers adopt Linux with more confidence, giving them the freedom of choice Linux provides without the anxiety over whether an open-source solution can truly be relied on for mission-critical functions. "We chose SUSE Linux because they are a clear market leader in Linux technology for the enterprise," Messman said. Richard Seibt, the CEO of Nuremberg, Germany-based SUSE, said in a statement that the combination of the two companies is a good fit. "Novell understands the power of open, standards-based computing and has been moving in that direction for some time. Novell's global reach, marketing expertise and reputation for security, reliability and global enterprise-level support are exactly what we've been seeking to take SUSE Linux to the next level." The deal, which is subject to regulatory approval, is expected to close by the end of its first fiscal quarter in January. Analysts said the Novell move is a good one, as long as SUSE is given the freedom to pursue its successful past partnerships with other vendors. Novell "clearly saw this as an opportunity to breathe new life" into its product lines, said Dan Kusnetzky, an analyst at IDC in Framingham, Mass. For SUSE, "hooking up with Novell gives them an established relationship" with many potential new customers and "opens the door for a great deal more opportunity for SUSE," he said.

One loser, however, could be SUSE rival Red Hat Inc., which is the dominant Linux vendor in the U.S. market, Kusnetzky said. Raleigh, N.C.-based Red Hat has recently made stricter moves with licensing and support contracts and fees that have raised concerns in the open-source community, he said. That could help steer business toward SUSE and Novell. Bill Claybrook, an analyst at Aberdeen Group Inc. in Boston, said that SUSE has "played second fiddle to Red Hat for a long time" and that the deal could help turn that around thanks to the backing of Novell. "SUSE probably needed an influx of money to compete," he said. Claybrook said his main concern about the deal is that SUSE's successful marketing and support partnerships with other vendors could be curtailed because of concerns that SUSE might be doing business with Novell competitors. If that were to happen, he said, it could be bad for SUSE. But if Novell allows those relationships to continue, the move will likely be a good match. Novell's move could be beneficial to Red Hat because it leaves Red Hat alone on top of the Linux marketplace, Claybrook added. "Not only were they the largest [Linux vendor], now they're the only independent major Linux distributor in the world," he said, referring to Red Hat. Chris Stone, vice chairman of Novell, said SUSE's partnership strategy won't have to change. Partnerships are "a fact of life" in today's marketplace, even when companies compete with specific products head to head, he said. A key benefit of the deal is that Novell will be able to bring all of its acquisitions together, from SUSE to Ximian to offer enterprise products from the desktop to the server, Stone said. "We've got all the parts covered. Now it's a matter of execution," he added. Seibt will remain as CEO and general manager of SUSE, and other staff positions will be reviewed, Stone said. The only major staffing duplication is in the financial and general administration areas of the two companies, he added, but Novell hopes to keep staffing as it is. Novell had been talking to SUSE about a buyout for a long time and made the decision to make its offer only recently, according to Stone. Although some overlaps could mean products may be dropped, customer response and a corporate review will be needed before those decisions are made, he said. Asked how the acquisition will affect Novell's relationship with Red Hat, Stone said the company will still certify the NetWare services on Red Hat 3.0, as well as on SUSE. "Obviously, now that we own the distribution, we have to potentially rethink that. But as of right now, our customers have been asking for both," he said.

"There's no technical reason that we shouldn't provide at least an option if you want to run it on Red Hat. But we're obviously going to lead with SUSE," Novell's Stone said. Juergen Geck, CTO at SUSE, said the acquisition helps move his company ahead in its efforts to become a larger player in the corporate IT market. "I think it's a matter of speed," he said. "Given 10 years more into the future, with proper funding and the right partners, we probably could have gotten somewhere close to where we are today [with Novell's buyout]. It gets us into another league." Martin Taylor, the general manager of platform strategy at Microsoft Corp., said the Novell acquisition merely provides "further evidence that Linux is going to continue to consolidate and become more and more commercial. "From our perspective, it means that Linux will move toward being held up to the commercial standards," Taylor said. "And that gives us an opportunity to look at things like cost, reliability, interoperability and even security for that matter on a more balanced playing field." Eric Raymond, president of the nonprofit Open Source Initiative, said the Novell deal sends interesting signals about Novell's plans for Linux. Since the company recently bought Boston-based Ximian and is now acquiring SUSE, Novell looks like it's making a "serious push for the desktop," Raymond said. And Red Hat's move to end the retail-boxed sales of its desktop Linux operating system and move to a completely open-source project available for free download (see story) opens the door wider to SUSE and Novell, he said.

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Juergen Geck, CTO of SUSE
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Deb Woods, a spokeswoman for Red Hat, defended her company's recent move to end its retail-boxed Linux version and ongoing support for its past desktop Linux operating systems (see story). Users will still have the choice of using the free, open-source version of Red Hat Linux, she said, through the free Fedora Project, as it's now called. Linux developers and contributors will still be able to add their work to the project, which will remain free for home users, hobbyists and everyone else. And the company will still offer a retail-boxed version of its Red Hat Professional Workstation operating system, which will retail for $99 and include nine CDs of programs, as well as a full year of upgrades and 30 days of installation support, she said. Meanwhile, the company will be able to focus on its enterprise Linux server products, while still offering Fedora to users for free. Also announced today is a related $50 million investment in Novell by IBM. The two companies are negotiating extensions to the current commercial agreements between IBM and SUSE for the continued support of SUSE Linux on IBM's eServer and middleware products. Computerworld's Don Tennant and Carol Sliwa contributed to this story.

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