What if Hewlett-Packard Bought Red Hat?

For years now, as the company has continued to post quarter after quarter of outstanding financial performance built on its Linux-centric business, speculation has run rampant that a major technology company might buy Red Hat. For a long time, many agreed that the most likely buyer might be Oracle, since the company hasn't been able to compete effectively with Red Hat's Linux business. For numerous reasons, though, that seems unlikely now. However, ZDNet's Larry Dignan ponders what a Red Hat acquisition might mean for Hewlett-Packard, and, indeed it might mean a lot if HP played its cards right.

HP's strategy day is coming up, and Dignan takes note of Cowen analyst Peter Goldmacher's discussion of what an HP acquisition of Red Hat might mean. According to Dignan (who cites some disagreements with Goldmacher):

"HP has historically focused on hardware acquisitions that have enabled it to buy components at lower prices. HP could buy Red Hat and start doing the same thing with enterprise software. And the numbers add up: HP’s Software business has an operating profit margin of 21.2 percent for fiscal 2010. Red Hat has margins of 24.7 percent for fiscal 2011 year to date. According to Goldmacher, HP could leave mission critical workloads to Oracle and slowly erode Larry Ellison’s 'opportunity to sell eight figure enterprise wide contracts' over time."

There is one problem with this acquisition concept, though, and Goldmacher seems to gloss over it: HP has a long-standing relationship with Microsoft that would likely suffer if it began commoditizing and boosting Red Hat's platform in enterprises. That relationship with Microsoft helps puts Windows on the desktops and servers of countless enterprises. 

Still, the idea of a Red Hat acquisition by a major technology player remains interesting. After Sun Microsystems and Novell were both bought by technology giants last year, that left Red Hat as the only public, U.S. company focused on open source. Open source is increasingly contributing to the commercial efforts of countless companies, and large companies like Gap Inc. have successfully moved to Red Hat's platform. One has to ask how long it will be before a major technology player sees the kind of value in Red Hat's proven software-plus-support business that Oracle and Attachmate saw in Sun and Novell.