Novell buying SUSE to expand its Linux reach

Just three months after it bought Linux desktop vendor Ximian, Novell surprised the Linux world on Tuesday by unveiling plans to acquire SUSE Linux AG.

In an announcement Tuesday morning, Novell said it's buying SUSE for US$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.

Jack Messman, chief executive officer (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. 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, North Carolina-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 fit.

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.

In a statement, Red Hat said it "feels that this is a likely match given Novell's new Linux strategy (such as its recent purchase of Ximian). It is our hope that SUSE will now offer purely open source solutions available to customers. Red Hat believes that open source standards-based solutions offer the best value to enterprise customers."

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 opens the door wider to SUSE and Novell, he said.

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.

More about Aberdeen GroupHISIBM AustraliaIDC AustraliaNovellOpen Source InitiativeOpen Source SolutionsRed HatSuseTuesday MorningXimian

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