Novell Acquires SUSE and IBM Tosses In

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With eyes fixed on the burgeoning Linux enterprise market, networking
software specialist Novell on Tuesday announced
plans to shell out $210 million in cash to acquire Germany’s SUSE Linux
AG.

The SUSE acquisition is Novell’s second major deal in the enterprise
Linux space, coming just a few months after the purchase of Ximian, a Boston, Mass.-based provider of Linux desktop,
management and groupware technologies.

Jack Messman, Novell chairman and CEO, said in a press conference this
morning, most of the 399 employees at SuSE Linux would retain their jobs
after the acquisition is completed, though some of the overlapping
administrative functions would be eliminated. He emphasized the German
headquarters for SuSE would remain in place.

“I want to put those fears to rest by saying that Novell is firmly
committed to maintaining SuSE’s presence in Nuremburg,” he said.

The acquisition of the number two Linux distributor (after Red Hat) is a
clear sign that companies that are deploying the Linux operating system
in competition with Microsoft’s Windows operating system have raised
their ante.

Novell also announced a $50 million stock investment from technology
giant IBM which has been aggressive about deploying
servers and product lines in tandem with the Linux operating system.

Additionally, Novell plans to extend commercial agreements with Big Blue
to continue markeing SUSE Linux on IBM’s eServer product lines. “Both of
these agreements [with IBM] will be effective when the acquisition of
SUSE Linux by Novell is completed,” the company said.

The deal is expected to close in January 2004.

Novell said the SUSE Linux purchase, which is a crucial component of its
open source strategy shift, would allow the delivery of enterprise
Linux products — from the server to the desktop.

SUSE Linux has a major presence in Europe where it markets Linux-based
operating systems and application software. The company’s product line
includes applications for servers, networking, data exchange, and
multimedia functions. SUSE has received financial backing from IBM,
Intel and Silicon Graphics .

It is also among the more popular “flavors” of Linux, noted Joe Wilcox,
a research analyst who covers Microsoft for Jupiter Research (whose
parent company also owns this publication). In addition, Novell’s
NetWare network operating system, which was popular throughout the
1990s, has been eclipsed by Microsoft’s Windows Server software, Wilcox
said. For Novell to increase its stake in a popular Linux distributor
based in Germany, where companies and municipalities are growing more
receptive to open source software, indicates “Novell is not willing to
cede the network operating system market to Microsoft without a fight,”
Wilcox said.

Chris Stone, Novell’s vice chairman, said IBM would have a roughly two
percent stake in Novell after its investment and minimized speculation
the Linux buy was done to compete more effectively with Microsoft.

“We didn’t do this to compete with Microsoft, that’s not the intention
at all,” he said. “Our objective isn’t to go out and replace Microsoft
desktops or Microsoft servers; if it happened that would be a nice side
benefit.

“The objective here is to reduce impediment to Linux in the enterprise,
it’s that simple,” he continued.”There’s an opportunity here we want
to take advantage of.”

In April, Novell detailed its planned technological migration of its
NetWare network operating system at its annual “BrainShare” user and
partner conference in Salt Lake City, Utah. At the time, Novell
executives said NetWare 7 will be out in around a year and a half, and
will offer a suite of services, which reside on both NetWare and Linux
kernels.

Wilcox noted that there are still a lot of companies out there that
still run Novell’s legacy NetWare software. “Novell increasing its Linux
offering [through the SUSE purchase] provides a non-Windows migration
path for those customers,” Wilcox said. “At the same time, we see
competitors of Microsoft increasingly lining up with each other in the
market,” such as IBM, which is “betting big” on Linux, taking a $50
million stake in the purchase.

Messman gave his thoughts regarding SCO’s $1
billion lawsuit against IBM, and the indemnification policy it
extended to Linux users who paid them a licensing fee to continue using
the operating system.

Many software vendors have said they would not to protect its customers
who use Linux if SCO manages to win the lawsuit, with the
major exception of Hewlett-Packard . Messman said
his company is going to issue guidance to its customers in coming weeks
over its own policy.

“We call on SCO to make public the basis of its claims on Linux, and I
think today’s announcement is evidence we’re moving forward aggressively
with our strategy to support Linux,” he said. “We’re not holding back
because of SCO’s disputed and unsubstantiated claims. We have not yet
had the chance to figure out what our response (to SCO’s indemnification
policy) is, but we will do so very quickly. I think that most people
are not concerned about it.”

Editor’s note: SCO’s President and CEO Darl McBride is scheduled to make a rare public appearance at Jupitermedia’s Enterprise IT Week at cdXpo, which runs from Nov. 17-20 in Las Vegas.

— Ryan Naraine of atnewyork.com contributed to this article.