Oracle shows no momentum in Linux effort

By Jim Finkle - Analysis

BOSTON (Reuters) - Oracle Corp. (ORCL.O) promised to take the Linux software world by storm last October, but the major expansion by one of the world's largest software companies so far has failed to show momentum.

Tiny rival Red Hat Inc.(RHT.N), which over a decade built a services business around Linux and legitimized the free, cooperatively developed operating system for corporate computing, has survived the onslaught and even grown.

It is still early days, but Oracle has not disclosed any major deals, and Wall Street remains cautious on the future of Oracle Linux.

"We haven't seen any announcements about customer wins. That's very telling," says 451 Group analyst Raven Zachary.

Redwood Shores, California-based Oracle declined to comment on its Linux program.

Linux is the most popular type of so-called open source software, a movement begun as a grass-roots approach to program development. Any improvements are shared, allowing Oracle to base its software on Red Hat's version.

The cooperative nature of the Linux community has united its supporters against Microsoft Corp.(MSFT.O) and its Windows system, even though Linux developers also fight one another.

Oracle doesn't expect huge revenue from its Linux product, but entering the fast-growing Linux market propels the company, known for its massive databases, into an industry segment where it has only indirectly participated.

NOT YET TESTED

So far some major software companies are on the sidelines, declining to guarantee that products designed to run on Red Hat Linux will also run on Oracle Linux -- which Oracle says is identical. That means customers cannot be sure that software built for Red Hat Linux, such as big database programs, will be supported when run on the Oracle version.

"Oracle's Linux is not certified. It's not tested," says Mark Murphy, an analyst with First Albany Capital. "It might be buggy. There's just no telling how horrible this Oracle offering could be."

Some investors had feared Oracle's launch might do quick damage to Red Hat, whose major customers include Amazon.com, Merrill Lynch, DreamWorks and Goodyear.

While that hasn't appeared to have happened, analysts say that Red Hat can't dismiss the Oracle threat. Business software products are rarely overnight hits, and Oracle is unlikely to have a shot at much of Red Hat's existing business until Red Hat's current contracts expire.

"Anybody that expected Oracle to start sticking it to Red Hat right away doesn't understand the time it takes to actually introduce a product," said Cowen & Co. analyst Peter Goldmacher.

And Oracle, the world's No. 3 software maker behind Microsoft and IBM, has plenty of financial resources, marketing experience and technical know-how to draw on. It had $14.4 billion in sales and $3.4 billion in profit in its most-recent fiscal year ended in May 2006.