Red Hat, Inc. - Mamma said knock you out (Larry)
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Each company running Red Hat's Linux needs to evaluate if switching from Red Hat to Oracle's "Unbreakable Linux" is right for their business. Oracle's has yet to certify their Linux solution not to mention Red Hat has spent years working with vendors and establishing relationships to ensure their product meets buyers expectations. Besides determining if Oracle's product is any better, companies will need to weigh the pros and cons of using Oracle's ongoing customer service and support. Companies go with Red Hat because of their experience and expertise, who says Oracle can do it better, even if it is cheaper?

Larry Ellison's plan sounds like another get rich quick scheme by another fan of the red hat, Fred 'Rerun' Berry.

How much will this improve Oracle's bottom line and how much will they have to spend to support "Unbreakable Linux"? Maybe the Bearded Prince will get Rog, Dwayne and Rerun to work at Oracle's customer support department and help make "Unbreakable Linux" the new standard. That is until Rerun opened his big mouth and let Rog's little sister Dee know about Larry Ellison's real plans of taking over the world. Dee told on all of them and then it was big trouble for the gang, but they all learned a valuable lesson by the end of the show (except for Larry).

Red Hat is not being bullied, they are standing by their pricing structure and are excepting Oracle's "half off" price competition. While Oracle spends money to bring "Unbreakable Linux" to life, Red Hat will be enjoying their steady cash flow of over $200 million during the next two years and over $268 million in cash - this according to Brendan Barnicle at Pacific Crest. However a big cash position is sometimes worse than a balance sheet without significant cash reserves - especially if the later has strong growth potential and creates economic value for shareholders in a defensible long-term way. It can be argued that big cash positions are a product of management's lack of ability to properly manage capital for shareholders. Microsoft (MFST) is increasingly coming under fire for this type of situation. Sure tons of cash can buy you many red hats, like the members of Team Zissou, but don't think you're special because on Team Zissou, "Everyone gets a red hat".

But Red Hat, Inc. has some impressive net revenue numbers - $45 million for 2005 and $79 million for 2006. You could argue that's nothing compared to Oracle's billion-dollar enterprise, but Red Hat isn't trying to rule the sea, they are floating by just fine doing what they do. Now that the opened-ended software business is turning into the open ocean, Red Hat is going to have to be careful navigating through the choppy seas. When you're out on the ocean, you have to be ready for anything, let's turn to Steve for guidance:

Steve Zissou: Son of a bitch, I'm sick of these dolphins.


Oracle has taken over J.D. Edwards, Siebel, and PeopleSoft. They want it all, and being King of Databases isn't enough, so off they go into the open-ended software market. This kind of play reminds me of yet another famous red hat guy, Charlie Hustle himself, Mr. Pete Rose. Pete Rose is the all-time major-league leader in hits (4,256), games played (3,562), and at bats (14,053). He has won three World Series and made 17 All-Star appearances, he is to baseball what Larry Ellison is to licensed software and databases. However Pete Rose made a choice that cost him his place in the Baseball Hall of Fame, he put everything on the line for a business that was not his forte - gambling on baseball. Could Larry Ellison also be making the wrong play by entering the Linux game? It's not his forte, so why put everything on the line, when investors and Wall Street will be watching so closely? Careful what you wish for Larry, stick to what you're good at, and leave the Linux games to those who have earned their red hat. When you go up against the best, be ready to play ball, or you may end up empty handed, and just going back to Cali.

Article written by: Frank Lara Jr.
Article posted on: October 31st, 2006