Red Hat: BofA Downgrades; Cites Troubles With JBoss

(via Matt) Following news that Novell may be building momentum comes news that Bank of America has downgraded RHT. As is often the case with stock analysts, more are piling on the downgrade now. From Barrons:

Red Hat (RHT) shares are lower today after Bank of America analyst Kirk Materne cut his rating on the stock to Neutral from Buy. His price target goes to $21 from $23.

Materne says the company’s fiscal third quarter ended November should be “solid,” but that its JBoss application server software “continues to have trouble gaining momentum.” He adds that there are “few catalysts on the horizon” that could add to current billings and cash flow growth estimates for the fiscal year ending in February 2008, or for that matter, FY 2009.

Meanwhile, Trip Chowdhry, of Global Equities Research, also downgraded the stock today, moving to Equal Weight. Chowdhry contends that the company’s business fundamentals are “deteriorating,” and that the JBos acquisition “is a complete failure.”

Chowdrhy also asserts that Red Hat Linux “is gradually being relegated to a position of non-criticality.” He also says Red Hat is losing momentum in the BRIC countries – Brazil, Russia, India and China – to Microsoft (MSFT) and Oracle (ORCL). And he says hardware vendors IBM and Hewlett-Packard are providing support and bug fixes for Red Hat Linux since “vendors feel Red Hat support is not enterprise class.”

Not least, he says that developer momentum is shifting away from the Open Source LAMP software stack – Linux, Apache, My SQL, PHP – and toward Microsoft’s .Net platform.

It’s true that Red Hat is having a little more difficulty than it anticipated integrating JBoss. When you acquire an Open Source company, much of what you are acquiring is the people. Many of the top JBoss people have left. The cultures were different, the sales models were different and I’d guess given the information Red Hat has now, they’d have done things a little bit differently. Hindsight is always 20/20 and I think the long term benefits for Red Hat and JBoss are still there.

Moving on to the Global Equities Research comments, I have no idea where Trip is getting his information. All other leading indicators I’ve seen indicate that Linux and Open Source are doing quite well in BRIC and other emerging markets (and in many of those markets Microsoft is either having difficulty gaining traction or is gaining traction by discounting heavily). Additionally, more and more companies are clearly choosing Linux for absolute mission critical applications. The NYSE is a recent example of this. Finally, LAMP adoption in general has been seeing very strong growth and MySQL AB still seems headed toward its IPO, despite the weakening US economy. It just goes to show that an “analyst” can say just about anything they want, typically with little to no justification or real repercussions.

–jeremy

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