Impact of the Mandrake-Conectiva Acquisition on the Linux Landscape

MozillaQuest the on-line computer magazine

6 March, 2005

http://www.simplylost.net/web/RetailShapeWorks/index.cfm

Looking at the Top Tier of Linux Distributions

Part 1: Comparing Mandrake, Novell, and Red Hat Financials

Mike Angelo -- 6 March 2005 (C)

Article Index

Mandrake-Conectiva in Top-Tier of Linux Distribution Providers

Comparing Top-Tier Linux Company Revenues

Table 1, The GNU-Linux Distribution Market Pie

Comparing Top-Tier Linux Company Market Values

Table 2, Top Tier Linux Company Market Values

Comparing Top-Tier Linux Company revenue to market value Ratios

Table 3, Top Tier Market Values Adjusted for P/E

Table 4, Top Tier Linux Company revenue to market value Ratios

Table 5, Top Tier Linux Company Employee Productivity

Summary

Resources

Books

To learn why Linux is so much a better choice than is Microsoft Windows, please see our article Gaël Duval Tells Why Mandrake Linux Is Better Than MS Windows

To learn how to run MS Windows-based software and accessories in GNU-Linux, please see our article Crossover Office 2.1 Runs MS Windows Software on GNU-Linux Systems

About Linux Distributions

For more about GNU-Linux distributions and how they are put together, please see Anatomy of a Linux Distribution in our article SCO Clears Linux Kernel but Implicates Red Hat and SuSE.

Under the terms of the GNU General Public License (GPL), the GNU-Linux operating system is free and open source software (FOSS) and no one can charge for it. However, Linux companies such as MandrakeSoft, Conectiva, Novell, Red Hat, SUSE, and others that add to the basic GNU-Linux OS may charge for the added value and for distributing the GNU-Linux OS. They also can charge for services such as product support, documentation, and so forth.

Mandrakesoft (stock symbol MDKFF) and Conectiva, announced plans for Mandrakesoft to purchase Conectiva for $2.3-million US ($1.79-million EUR) in stock. Mandrake's acquisition of Conectiva strengthens Mandrake's position among the top-tier Linux distribution providers. But, just what impact will the Conectiva acquisition have on the Linux landscape?

According to a 24 February 2005, joint, Mandrakesoft and Conectiva press release:

This acquisition is expected to increase significantly Mandrakesoft's size and R&D [research and development] capabilities. . . . Both Mandrakesoft and Conectiva are profitable companies. The resulting corporation will benefit from several synergies by sharing development resources, commercial prospects and larger economies of scale, resulting in improved development potential for both companies.

For more about Mandrakesoft's acquisition of Conectiva please see our article, Mandrakesoft To Acquire Conectiva -- Overview of the Mandrake-Conectiva Acquisition.

Mandrakesoft's CEO, François Bancilhon, sees Mandrake-Conectiva in the top tier of Linux distribution providers. And he sees Mandrake-Conectiva as a key player in the Linux community. Moreover, he sees the Conectiva acquisition as something that will increase Mandrakesoft's slice of the top-tier pie.

Mandrake-Conectiva in Top-Tier of Linux Distribution Providers

Two of the top-tier Linux distribution companies are Novel-SUSE (NOVL) and Red Hat (RHAT). In the 24 February Conectiva-acquisition press conference, this writer asked Mandrakesoft's CEO, François Bancilhon, if he, Bancilhon, considered the Mandrake-Conectiva combination to be in the top tier of Linux companies. He, Bancilhon, replied in the affirmative.

So, let's take a look at the players in this top tier and just where Mandrake-Conectiva stands in the top-tier group. How do they compare in revenue, market value, price-earnings ratio, number of employees, productivity, and other financial measures? What is the user-base for their Linux distributions?

Comparing Top-Tier Linux Company Revenues

For Novell's full fiscal year 2004, which ended Oct. 31, 2004, Novell reported revenue of $1.166-billion US and net income available to common stockholders of $31-million US. Revenue-wise that puts Novell well-over an order of magnitude larger than either Mandrake-Conectiva or Red Hat.

However, at this time Novell's Linux business produces only a relatively small portion of Novell revenues. Novell now owns SUSE Linux, which pretty much accounted for Novell's fiscal year 2004 Linux business.

Table 1, below, is a comparison on the approximate revenues of Mandrake-Conectiva, Novel-SUSE, and Red Hat. The next few sections of this article and Part 2 of this series explain how we got the numbers for Table 1 and the other tables of today's article -- and how these numbers indicate how these companies stack up against each other.

When overall revenues are considered, Novell is way ahead of both second place Red Hat and third place Mandrake-Conectiva. However, if Novell's Linux business is parsed from the rest of Novell's business, Red Hat takes the lead over second place Novell's Linux business and third place Mandrake-Conectiva.

Table 1. The GNU-Linux Distribution Market Pie Comparison of Mandrake-Conectiva, Novell (Linux business), Red Hat, and Novell (entire business) annual revenues.
Company	Annual Revenue
Mandrake-Conectiva .........	$ 8.9-million US
Novell (Linux business) ....	$ 50-million US
Red Hat .............................	$124-million US
Novell (entire business) ....	$1,166-million US

Comparing Top-Tier Linux Company Market Values

Another perspective of how these three, top, Linux distribution companies match up against each other is how much the companies are worth. Table 2, below, compares the market values of Mandrake-Conectiva, Novell (SUSE Linux business), Novell (entire business), and Red Hat.

In this market value comparison, Novell and Red Hat are pretty close. And both are well more than an order of magnitude above Mandrake-Conectiva and Novell's Linux business. The market value of Novell's Linux business likely is well below that of Red Hat's market value.

SUSE no longer is a separate company. It is part of Novell. Estimating a market value of Novell's SUSE Linux business is something we do here only for the purposes of trying to get a more apples to apples comparison of Novell's Linux business to the other top-tier Linux distribution companies, Mandrake-Conectiva and Red Hat.

In our e-mail discussions with Novell's Director of Public Relations, Bruce Lowry, he emphasized that: SUSE [now] is part of Novell. It has no independent market value now. It does not exist as a standalone company.

Table 2. Top Tier Linux Company Market Values Comparison of Mandrakesoft, Mandrake-Conectiva, Novell (SUSE Linux business), Novell (entire business), and Red Hat market values.
Company	Market Value
Mandrakesoft ..........................	$52-million US
Mandrake-Conectiva* .............	$54.3-million US
Novell (SUSE)** ......................	$210-million US
Red Hat ....................................	$1,970-million US
Novell (entire business) ...........	$2,080-million US
Notes: The Novell (entire business) and Red Hat market values are the market cap (market capitalization) values as of 4:00 PM EST on 1 March 2005 reported by *Yahoo! Finance. The Mandrakesoft market value (market cap) was provided by Mandrakesoft's Gaël Duval. The Conectiva purchase price, $2.3-million US, was used to estimate the market value for Conectiva, which then was added to the Mandrakesoft $52-million market cap figure. In an e-mail discussion, Mandrakesoft's Gaël Duval noted: the combined market cap is likely to be more than $52-million plus $2.3-million because Mandrakesoft has more visibility on the market. But the market will tell the value in the future. ** The Novell (SUSE) market value is a crude estimate based on the amount that Novell paid to acquire SUSE a year or so ago. The current SUSE market value was not available from Novell. Since SUSE now is part of Novell, there is no market cap figure (number of common stock shares multiplied by the by the price per share -- in essence market cap is a real-time, fair market value). However, even though a market cap for what amounts to the SUSE part of Novell is not available, one still can make an estimate or appraisal of a fair, market value for what amounts to the SUSE-part of Novell. Here, we chose the actual sale/purchase price, $210-million US, from Novell's acquisition of SUSE as our estimate of the fair market value of the SUSE portion of Novell -- for the purpose of comparing Novell's Linux business to the other top-tier Linux distribution providers.