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6 March, 2005
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Looking at the Top Tier of Linux Distributions

Impact of the Mandrake-Conectiva Acquisition on the Linux Landscape

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

Mike Angelo -- 6 March 2005 (C) -- Page 2

Article Index

Comparing Top-Tier Linux Company revenue to market value Ratios

In terms of revenue to market value ratios, Novell seems to be way ahead of the pack in the revenue to market value ratio comparisons. The revenue to market value ratio for Novell's entire business is 0.59. Novell's Linux business (SUSE) and Mandrake-Conectiva come in closely to each other at 0.24 and 0.17, respectively.

But here, Red Hat is way behind everyone at only a 0.06 ratio. Could Red Hat be just a bit overpriced?

(Incidentally, as of 4:00 PM EST on 1 March 2005, Red Hat's (RHAT) price to earnings ratio (P/E) was 56.24 and Novell's (NOVL) P/E was 5.47. Our estimate of Mandrakesoft's P/E is about 28.89 based on 5,312,889 shares of common stock and a per share price of $10.45 as of 4:00 PM EST on 1 March 2005. On the basis of P/E only, Novell and Mandrakesoft appear to be much better buys than Red Hat.)

Speaking of price to earnings ratios, we thought it would be interesting to compare market or company value with the differences in P/E factored out of the comparisons. That's because the measure of market value, market cap, depends on the market price of a company's stock.

In the Linux companies compared here, there is a range of P/Es from 5.47 for Novell to 56.24 for Red Hat. The higher the P/E for a company, the more overpriced the stock of that company is on the bases of revenue. The lower the P/E, the more under priced a stock is on the basis of revenue. Generally, a price to earnings ratio of about 20 is considered neutral -- that is not overpriced and not under-priced.

(Please remember we are not doing an investment recomendation report. We merely are trying to put these top-tier, Linux distribution companies in perspective with each other. P/E suffices for that. For investment purposes, for example, one might want to put more weight on the Price/Earnings to Growth Ratio (PEG).)

The market values of Mandrakesoft, Novell (entire business), and Red Hat shown in Table 2, page 1, are market cap values. And adjusting the market value as expressed by the market cap statistic is an abstraction of sorts. Nevertheless, adjusting the market cap for P/E puts a comparison of several companies in an interesting perspective -- even though it is an abstraction.

Interestingly, the adjusted for P/E market values shown in Table 3, below, do seem to correlate well with the true sizes of the companies as reflected by the number of people they employ -- as shown in Table 5, below, and their revenues as shown in Table 1, page 1.

Face it. It's pretty obvious that Novell is a much larger company than is Red Hat. Yet the market cap of Red Hat, $2.08-billion US, makes Red Hat appear to be a bigger company than Novell with a market cap of $1.97-billion US. Phooey!

Novell with 5,734 employees and revenues of $1.16-billion US appears to be a much larger company than Red Hat -- with 681 employees and revenues of $124-million US.


Table 3. Top-Tier Market Values Adjusted for P/E

Comparison of Mandrakesoft, Novell (entire business), and Red Hat market values adjusted for P/E normalized to 20. Normalization was made by using the formula, adjusted-market-value = (20/PE) * market-cap.

Company Market Value P/E Adjusted Marke Value Revenue
Mandrakesoft $ 52-million US 28.89 $ 35.86-M $ 8.9-M
Novell (all) $1,970-million US 5.47 $7,202.93-M $1,160-M
Red Hat $2,080-million US 56.24 $ 739.69-M $ 124-M

Note: The Novell (entire business) and Red Hat market values and P/Es 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. We calculated the Mandrakesoft P/E based on data furnished by Mandrakesoft and stock prices as of 4:00 PM EST on 1 March 2005 reported by Yahoo! Finance. ( P/ E = (market-cap/share) / (earnings/share)


The numbers we are setting forth here only are for the limited purpose of comparing these three, top-tier, Linux distribution providers. They are not for investment or any other purpose. If you see something here that leads you to believe you might want to buy or sell stock in any of these companies, we strongly suggest that you consult with your financial or investment advisor rather than rely on any information or opinions in this article.

That said and only on the basis of the numbers we have reported, estimated, and crunched here, it appears that Red Hat is overpriced, Novell is under-priced, and Mandrake is about where it ought to be.


Table 4. Top-Tier Linux Company revenue to market value Ratios

Comparison of Mandrake-Conectiva, Novell (Linux business), Red Hat, and Novell (entire business) revenues to market values. Computed revenue to market value ratios are based on the data from Tables 1 and 2 on page 1.

Company Revenue to Market Value Ratio
Mandrake-Conectiva .................... 0.16
Novell (Linux business) ................ 0.24
Red Hat ......................................... 0.06
Novell (entire business) ................ 0.59


Table 5. Top-Tier Linux Company Employee Productivity

Comparison of Mandrake-Conectiva, Mandrakesoft (before acquisition), Red Hat, and Novell (entire business) employee productivity as measured by revenue per employee.

Company Number of Employees Productivity (Revenue/Employee)
Mandrake-Conectiva 130 $68,461.54
Mandrakesoft (before acquisition) 70 $95,714.29
Red Hat 681 $182,085.17
Novell (all) 5,734 $202,302.06


Part 1 Summary

Today in Part 1, we have compared how Mandrake-Conectiva, Novell, and Red Hat stack up against each other on several fundamental fiscal measures -- revenues, market values, revenue to market value ratios, price-earning ratios, and employee productivity. Mandrake-Conectiva is smaller on the money measures than are Novell-SUSE and Red Hat. However, Mandrakesoft Linux is a very good GNU-Linux distribution and is very popular. 

In an e-mail discussion, Mandrakesoft CEO, François Bancilhon told MozillaQuest Magazine: the Linux market is just starting, we are not in a well established market and many things can happen in a near future, so we're running a marathon, not a 100 meter race. Mandrake-Conectiva is very determined and is in for the long haul.

In Part 2 coming shortly, we will look further into the financials and demographics of Mandrake-Conectiva, Novell, and Red Hat. We also will look at the problems of trying to compare Linux distribution providers. And we will look at where Mandrake-Conectiva, Novell, and Red Hat stand in the consumer, SMB, and enterprise arenas.

In Part 3 the focus will be on the impact of the Mandrakesoft acquisition of Conectiva on the Linux landscape, and how it improves the Linux landscape. We also will look at how Mandrake-Conectiva and Novell plan to grow their businesses. Will they do that by focusing their marketing endeavours on grabbing users from other Linux companies or by migrating people from other operating systems such as Microsoft Windows or Unix?

And then we will look at what's ahead for Mandrake-Conectiva and the Linux landscape. Stay tuned.


<---- Back to Page 1


Article Index

Office on the Linux Desktop

OpenOffice 1.1 -- A Complete Office/Productivity Software Suite for GNU-Linux, FreeBSD, MAC, MS-Windows, Unix, and more

Books

  • The definitive computer hardware book:

Upgrading and Repairing PCs, 16th Edition, Scott Mueller, Que, ISBN: 0789731738. $60


  • Some Interesting Linux Books

Acing the LINUX+ Certification Exam, Patrick Regan, Pearson Prentice Hall, ISBN: 0131121553. $88

Beginning Linux Programming, 3rd Edition, Matthew and Stones, (Foreword by Alan Cox), Wiley. ISBN: 0-7645-4497-7. $40

Novell Certified Linux Engineer (Novell CLE) Study Guide, Robb Tracy, Novell Press, ISBN: 0789732033. $60

Fedora 3 Unleashed, Bill Ball and Hoyt Duff, Sams, ISBN: 0672327082. $50.

Fedora Linux 2 Bible, Christopher Negus, Wiley, ISBN: 0-7645-5745-9. $50


Linux For Dummies, 5th Edition, Dee-Ann LeBlanc, Wiley, ISBN: 0-7645-4310-5. $30

Linux in a Nuthsell, 4th Ed., Siever, Figgins, and Weber, O'Reilly, ISBN: 0-596-00482-6. $40

Linux Kernel Development, 2nd Ed., Robert Love, Novell Press., ISBN: 0672327201. $45

Linux Network Architecture, By Wehrle, Pahlke, Ritter, Muller, and Bechler, Pearson Prentice Hall, ISBN: 0131777203. $50


Linux Programming by Example: The Fundamentals, Arnold Robbins, , Prentice Hall PTR, ISBN: 0131429647. $40

The Linux Process Manager: The internals of scheduling, interrupts and signals, By John O'Gorman, Wiley, ISBN: 0-470-84771-9. $35

Linux Toys, Christopher Negus and Chuck Wolber, Wiley, ISBN: 0-7645-2508-5. $30

Linux Troubleshooting Bible, Christopher Negus, Thomas Weeks, Wiley, ISBN: 0-7645-6997-X. $30


Official Fedora Companion, Nick Petreley, Wiley, ISBN: 0-7645-5836-6. $20

Operating Systems, 3rd Edition, Deitel, Deitel, and David, Pearson Prentice Hall, ISBN: 0131828274. $103

Principles of Network and System Administration, 2nd Edition, Mark Burgess, Wiley, ISBN: 0-470-86807-4. $50


Running Linux, 4th Ed., Welsh, Dalheimer, Dawson, and Kaufman, O'Reilly, ISBN, 0-596-00272-6. $45

Understanding the Linux Kernel, 2nd Edition, Daniel P. Bovet and Marco Cesati, O'Reilly, ISBN: 0-596-00213-0. $50

Understanding the Linux Virtual Memory Manager, Mel Gorman, Prentice Hall PTR, ISBN: 0131453483. $60

Resources
  • Related Mandrake, Conectiva, Novell, and Linux Articles


Deja Novell All Over Again (Includes an exclusive interview with Novell CEO Jack Messman)

Novell Linux Dominates LinuxWorld 2004: Overview


MandrakeSoft To Acquire Conectiva -- Overview of the Mandrake-Conectiva Acquisition

Mandrake Linux 10.1 Official - 2.6 Linux kernel

Gaël Duval Tells Why Mandrake Linux Is Better Than MS Windows

Microsoft PR Does Not Refute Mandrake Linux Better Than Windows

Mandrake Linux 9.0, Desktop Magic You Can Use: A First Look


SuSE Linux Enterprise Server 8 for AMD64 Released


Linux Networking for Windows and Desktop People -- Mandrake 9.1 and LinNeighborhood

Gaël Duval and Mike Angelo Discuss Mandrake Business Products and Finances

MandrakeSoft Adds MandrakeClustering to Its Business and Enterprise Products Lineup

Gaël Duval and Mike Angelo Discuss The HP-Mandrake Computer

HP to Ship Desktop PCs with Mandrake 9.1 Linux Pre-Installed - Good News for Mandrake Linux and Fans


Gaël Duval and Mike Angelo Discuss the New Mandrake AMD64 OS

Mandrake Linux Corporate Server 2.1 for AMD Opteron

Mandrake Linux Shows Profit -- End to Bankruptcy Near


Conectiva, Mandrake, and SuSE Say No SCO in Their Code

SCO-Caldera v IBM: Conectiva's Gordon Ho Responds to SCO-Caldera's Linux-Related Allegations


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