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Friday, October 27, 2006

Oracle's Cut-Rate Deal (ORCL)(RHAT)

Oracle is getting into the Linux operating system business. Linux is open-source software that is "free". It cost money to program it for certain applications, but the "kernel", the heart of the application has been written by "volunteers" who have built the operating system over time.

Several companies offer Linux applications for large businesses including public company Redhat. Oracle is obviously a much bigger company. Oracle's revenue last year was almost $12 billion. Redhat's was under $300 million.

Oracle's move has hit Redhat's stock hard. It now trades at below $15. In May, it hit almost $33.

The strange thing about Oracle's initiative is that it will offer support for Linux products at 50% of its normal support fees. But, IT managers love Redhat. They rank its No.1 for "vendor value". The same survey ranks Oracle 39 out of 41 companies measured.

Oracle may be offering discounts, but, with poor perception of its value to IT managers, its success is not a lock.

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

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