Guild Companies

Commercial Linux distributor Red Hat last week gave a sneak preview of its upcoming Linux implementations for enterprise server and workstation customers, which is expected to start shipping in mid to late October. The company is rejiggering the way it builds Linux server operating systems to make them better fit the way customers are actually using Linux.

The new Enterprise Linux 3 variants for servers, clusters, and workstations will also use the same Linux 2.4.21 code base across 32-bit and 64-bit Intel, 32-bit and 64-bit AMD, and 64-bit IBM Power (iSeries and pSeries) and zSeries platforms. Until now, different implementations of Red Hat's Linux using different kernel levels ran on these seven different platforms. Red Hat has finally understood that it needs to have one code base not only for itself but also to simply things for its customers and its software partners that want to write applications for Linux.

The Enterprise Linux 3 preview was buried inside of a broader announcement Red Hat made concerning a new initiative called the Open Source Architecture. Red Hat says that it will be drawing upon input from the community (presumably the Linux community), from technology round-table discussions, and from customers in order to create an open source infrastructure that will span as many hardware platforms as is practical. Red Hat is pitching the new Enterprise Linux 3 as the foundation of this effort. Given Red Hat's position as the dominant supplier of Linux licenses and support to the enterprise, it seems that Red Hat's Open Source Architecture is as much about Red Hat driving the standards it wants as it is about developing standards that customers want.

Red Hat says that the next phase of the Open Source Architecture will include a Web application framework, and will be based on technologies being developed by the ObjectWeb consortium, the Apache Software Foundation, and the Eclipse integrated development environment toolset. Following this, Red hat will work on delivering virtualization and systems management capabilities for its Linux platform that drive up the utilization of the machines running those operating systems and drive down their costs of ownership.

The result that Red Hat is shooting for with the Open Source Architecture is multiple hardware platforms from multiple vendors, supporting middleware, databases, and applications from multiple software vendors, all running on Red Hat Linux releases designed for specific jobs and customers, and running their applications as efficiently and as flexibly as possible. Red Hat is pushing its own content management and portal server and will likely layer on other applications--security and identity management are obvious next moves.

As for Enterprise Linux 3, the company has woven some 350 enhancements into the current Enterprise Linux 2.1 release. While Red Hat will keep the same distributions within the enterprise operating system group--Linux AS is the top-end server environment with all the bells and whistles, Linux ES is a midrange platform for smaller servers, and Linux WS is for workstations--the company is making a number of changes. First, the clustering capabilities that have been woven into Linux Advanced Server (now known as Linux AS) since its debut in May 2002 are being extracted from Linux AS and will be sold separately as Red Hat Cluster Suite starting in 2004. Red Hat Developer Suite, which is based heavily on Eclipse tools, is also due as an adjunct to Enterprise Linux 3 next year.

Enterprise Linux 3 AS will be available on all platforms--Intel (Pentium and Itanium), AMD (Athlon and Opteron), Power (IBM iSeries and pSeries), and IBM zSeries. Enterprise Linux 3 ES, which is aimed at entry servers that primarily do infrastructure workloads, will only be available on 32-bit Intel and AMD platforms. Enterprise Linux WS will be available on 32-bit and 64-bit Intel and AMD platforms, but not on Power-based workstations from IBM. IBM is probably working to push Red Hat to support its Linux WS on its workstations.

Red Hat will not talk about pricing until the products roll out at the end of this month. Right now, zSeries and iSeries customers pay a hefty premium for an implementation of Linux that is far less sophisticated than the Linux AS 2.1 release shipping on Intel boxes. It would be gratifying to see Red Hat sell its Linux licenses and support on all platforms for the same price, but this seems unlikely if past history is any guide. However, when Red Hat is charging $5,250 for a Red Hat 7.3 license and only $349 or $799 for a Linux ES license on an Intel box that has more features, it comes as no surprise that iSeries customers are not exactly flocking to Red Hat to run Linux on their iSeries inside partitions. If Red Hat stops gouging iSeries, pSeries, and zSeries customers, it will have a much easier time establishing a bigger base of customers. And if Red Hat doesn't, you can bet that SuSE will.

In a separate announcement, Red Hat recently reported financial results for its fiscal second quarter, which ended August 31. Red Hat booked $14.9 million in annual subscription revenues for its enterprise products in the quarter, an increase of 123 percent (that means double the revenue, plus another 23 percent on top of that, compared with the fiscal 2002 second quarter). Red Hat sold 2,300 new annual subscriptions to enterprise Linux products and says it has now sold 26,000 subscriptions since rolling out the products over the course of the past year.

Sales of embedded Linux licenses and support dropped by 36 percent, to $490,000. Sales of Red Hat operating systems to the retail channel, which is mostly for desktop Linux, came to $3.1 million in the quarter, an increase of 6 percent over the same quarter last year but a decline of 30 percent sequentially. Red Hat was known to be working on a new desktop Linux release, Red Hat 9, and this might have crimped sales. Total subscription sales for the quarter were $18.5 million, up by 78 percent from a year ago.

Red Hat booked another $10.3 million in services revenues from existing customers on the quarter, a slight decline compared with the same period last year. Overall sales at Red Hat were $28.9 million, up 36 percent. Net income for the quarter was $3.3 million, or 2 cents a share, compared with a net loss of $1.95 million, or 1 cent a share, this time last year.