Red Hat Confidently Announces Share Buyback

| About: Red Hat, (RHT)

Just one day after seeing their shares slump 28%, following Oracle’s announcement that they would be entering the Linux market as a direct competitor, Red Hat’s (RHAT) management sent a message to Wall Street on Friday. In a show of great confidence in their future prospects, Red Hat’s Board of Directors authorized a $325 million buyback of stock and debt.

“We believe this repurchase program is in the best interest of our shareholders,” said finance chief Charles Peters. “It underscores our belief in Red Hat’s future and represents an opportunity to enhance long-term shareholder value.”

These words come in stark contrast to the visions of gloom and doom crafted by analysts last Thursday. While investors speculated over the potential losses in pricing power and costumer attrition that Oracle’s entry may bring, Red Hat self-assuredly issued this response to the news on their site. A few points that stand out…

Red Hat & JBoss Subscriptions

Q: Does Oracle’s announcement include support for the Red Hat Application Stack, JBoss, Hibernate, Red Hat GFS, Red Hat Cluster Suite, and Red Hat Directory Server?

A: No. Oracle does not support any of these leading open source products.

Hardware Compatibility

Q: Oracle says their Linux support includes the same hardware compatibility and certifications as Red Hat Enterprise Linux. Is this true?

A: No. Oracle has stated they will make changes to the code independently of Red Hat. As a result these changes will not be tested during Red Hat’s hardware testing and certification process, and may cause unexpected behavior. Hence Red Hat hardware certifications are invalidated.


Q: Can Oracle produce timely security updates to Red Hat Enterprise Linux as they stated?

A: No. There will be a delay between the time a Red Hat Enterprise Linux update is issued and the time the source code makes its way to Oracle. There is no guarantee that the source code for the Red Hat Enterprise Linux update will work correctly when integrated into Oracle’s Linux code base; this integration and test will take additional time. In the case where the update corrects critical security flaws, Oracle customers may be exposed to additional risk.

Disclosure: The Marley Group does not have a position in Red Hat.

RHAT 1-yr. chart

RHAT Investment

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