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Monday, October 16, 2006

Oracle Moves In On Microsoft (ORCL)(MSFT)(RHAT)(SAP)

News that Oracle may begin shipping Linux based software knock shares of Redhat down 7% late last week. Redhat is the largest distributor of the Linux operating system. The company’s shares have had a rough year so far, falling from over $32 in May to under $20 last week.

Redhat’s revenue run rate is only $400 million a year, so it is easy to see why the move by the $14 billion in revenue Oracle would be a tough competitor.

But, that is only the beginning of the story.

Oracle would prefer not to rely on Microsoft. And, why not? Oracle is the world’s second largest software company. Why give Microsoft a bigger lead.

Oracle already competes with Microsoft in a number of areas. Its database software competes with Microsoft Microsoft SQL Server. But, many Oracle products work with Microsoft software. For example, Oracle’s popular database server operates with Microsoft’s transaction server.

Oracle has not gone on its recent acquisition binge to simply compete with SAP, it primary rival. It has the opportunity to compete with Microsoft in the core database market, and putting together a set of products that does not rely on Windows could be critical to this has to be part of the plan.

Redhat is a sideshow. Microsoft is the real target. And, Linux is the arrow.

Douglas A. McIntyre can be reached at He does not own securities in companies that he writes about.

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