IBM has made a promised $50m investment in new Linux power Novell, tightening the companies' technology partnership. At the same time, Hewlett-Packard is expanding its own Novell relationship with a push into desktop computers.
As part of the new arrangement, announced late on Tuesday, IBM may directly load Novell's SuSE Linux software onto its blade servers and all members of its four server lines, the companies said. Currently, customers may pay for SuSE Linux through IBM, which reorders it from SuSE.
IBM rival Hewlett-Packard is already permitted to load SuSE Linux onto its servers but is now extending the deal to desktop computers, according to Richard Seibt, SuSE's former chief executive and now head of Novell's European operation.
The expanded HP arrangement -- announced on Wednesday at the Novell BrainShare 2004 conference in Salt Lake City -- places more pressure on Microsoft, which is now the dominant power for desktop software. HP, currently the No. 1 seller of PCs, already displayed some independence from Microsoft earlier this month with an announcement of Linux PC sales in Asia.
"We're announcing today an expansion of that relationship to now include the desktop platform," said Martin Fink, HP's Linux vice president. "We're going to be certifying, testing and supporting Novell SuSE Professional on a pretty complete range of desktops and laptops going forward," with the first models due "later in the year".
The bulk of Linux revenue today is to be found in servers, which are powerful, networked machines that handle tasks such as housing customer databases or hosting Web sites. Overall, IBM has the top server market share, but HP leads in the Linux category, according to market researchers.
Crunching numbers
Big Blue committed to the investment in November, when Novell announced its planned $210m acquisition of SuSE Linux, the second-ranked seller of the open-source operating system after Red Hat. But Novell and IBM still hadn't hammered out terms by the time the SuSE acquisition closed in January, and as late as Monday, Novell chief executive Jack Messman said the companies were still haggling over pricing details.
IBM's investment solidifies its connection with Novell, whose SuSE division was more eager than Red Hat to support IBM's full range of servers.
In the deal, IBM bought Novell preferred shares that may be converted into eight million shares of common stock for $6.25 per share. The preferred shares come with a dividend of 2 percent per year, which Novell pays in cash quarterly.
Upon conversion, IBM would own just less than 2 percent of Novell's 390 million outstanding shares, Novell said.
Because Novell's stock price has increased since the investment plan was announced in November, Novell expects to record a non-cash dividend of about $26m in the quarter related to the value of the conversion feature of the preferred stock IBM bought. The conversion feature will reduce earnings per share by about seven cents per share for the current quarter, but it won't decrease net income, Novell said.
Red Hat on Tuesday announced its own deal with Big Blue, under which the operating system may be loaded on IBM servers that use its Power processor. IBM already could load Red Hat Enterprise Linux on its Intel processor-based systems.
Jim Stallings, general manager of IBM's Linux group, said in a speech at BrainShare that the Novell deal also includes more joint sales, marketing and training work. Stallings said the work will include not just a previously announced programme to coax Microsoft Windows NT 4 customers to Linux but now also a new programme to wean them from Microsoft Exchange email and calendar server software to Novell's competing GroupWise package.
Meanwhile, desktop Linux is heating up. Novell is focusing on a "complete Linux desktop", and Red Hat said Tuesday that it will release a desktop product later this year.
And HP isn't the only hardware company supporting desktop Linux. Sun Microsystems has its Java Desktop System product, and Stallings said IBM is interested as well. "This is an area of tremendous appeal to customers," he said. "They find that Linux is a lot more secure" than Windows.
Talkback
For those companies that dont own their own server technology and linux distribution this is a huge risk. I dont think most companies are going to be willing to bet their business on the technology evangelism that seems to be largely behind the linux desktop push.
A couple of other points:
1. Novell does not have a great track record with patching and releasing information about bugs that require a patch. This is very frustrating and has been going on for years.
2. Novell has a serious problem with facts in the docs available on their web site. The worst are the comparison documents with competing products. Blatant lies dont make me more comfortable with their products.
3. MS products are not always a panacea but the products typically work and you can get support.
4. Your competition may be using Windows XP and Office 2003. Even if Suse and Openoffice are acceptable, they do not increase productivity when compared. I dont have scientific data, but I do use both Office 2003 and Openoffice and Openoffice is lacking in a number of features. In a time when ever ounce of productivity counts, this is not a good business bet.
On the other hand - I think this move is a great business move for Novell. If they combine it with some better documentation and support practices they may be able to bridge the gap and become a credible choice.