SAP-Red Hat merger speculation seen as long shot

Analysts pour scorn on speculation of buyout. By Chris Kanaracus

There is continued industry speculation regarding a possible takeover of Red Hat, this time by SAP, but a number of industry observers said the prospect is unlikely at best.

"There seem to be so many more directions that make more sense" for SAP, such as the enterprise mobility strategy the company is pursuing through its recent acquisition of Sybase, says 451 Group analyst China Martens.

In addition, SAP executives have repeatedly says they recognise that their customers have heterogeneous IT environments. Buying up Red Hat, which has virtualisation, middleware and Linux operating-system technologies, clearly wouldn't mesh well with that approach, Martens says. "Doesn't that take them right into stack city?"

Redmonk analyst Michael Coté expressed a similar view. "SAP doesn't buy systems-level infrastructure [vendors]. Sybase was one of the lowest-level in recent times," he says.

Nonetheless, "it is kind of a crazy time" in enterprise IT, with vendors "scrambling around" to broaden their technological footprints, Coté added. He pointed to the likes of VMware getting into application development by scooping up SpringSource, along with Oracle's entry into hardware through the Sun Microsystems acquisition.

But Coté sees another reason to be highly sceptical of a Red Hat-SAP merger. "Until recently, SAP was not open-source friendly. Of all the companies you could buy, Red Hat is the most open-sourcey," he says.

Moreover, although there are strong open-source evangelists within SAP, they are "not the ones steering the big ship," says independent analyst Jon Reed.

If anything, SAP and Red Hat will continue to build on their long-standing partnership, says Altimeter Group analyst Ray Wang.

Buying Red Hat would send customers mixed messages regarding the future of certain technologies, particularly SAP's NetWeaver middleware platform, Wang says. At a recent event to discuss the Sybase deal, SAP CTO Vishal Sikka took pains to stress the company's continued commitment to NetWeaver.

Beyond giving it the problem of rationalising overlapping products, adding more middleware makes little sense for SAP strategically, Reed says. "When they lose a deal, it is not because of Oracle's middleware."

Meanwhile, buying Red Hat, which reported US$748 million in revenue for its fiscal 2010, would likely require a significant sum of money. But SAP has shown it is open to large deals, paying about $6.8 billion for business intelligence vendor Business Objects and around $6 billion for Sybase.

Still, one must consider the nature of those purchases, Reed says. "It is not about compiling a stack, it is about [capitalising on] emerging trends."

If SAP is going to make any more major acquisitions, it would be wise to purchase an experienced software as a service (SaaS) provider, Coté says. SAP's SaaS offerings include the Business ByDesign on-demand ERP (enterprise resource planning) suite, as well as SaaS extensions for its on-premises installed base, but the strategy remains fairly nascent.

For now at least, SAP is probably most intent on fulfilling promises made at the recent Sybase event, such as its vow to deliver a mobile development platform within nine months, Reed says. "They need to do it."

Both Red Hat and SAP spokespeople say the companies do not comment on market rumours or speculation.

Join the newsletter!


Sign up to gain exclusive access to email subscriptions, event invitations, competitions, giveaways, and much more.

Membership is free, and your security and privacy remain protected. View our privacy policy before signing up.

Error: Please check your email address.

Tags Special ID

Show Comments