H-P Offers to Take the Worry Out of Linux for Customers

Wall Street's reaction Wednesday to Hewlett-Packard's (HPQ) plan to indemnify Linux users from legal challenges from SCO Group (SCOX) supported the interpretation that H-P is giving little credence to SCO's suit over Linux open-source code.

Shares of SCO dove $1.69, or 9%, to $17.20 in recent trading. H-P shares were down 2.1% at $19.97 and shares of Red Hat(RHAT), one of the major vendors of Linux software and services, declined 2.3% to $10.40 in recent trading Wednesday, when the company also held its analyst day.

H-P, the No. 1 platform for Linux, said this week that it would indemnify its Linux customers against any legal actions by SCO. SCO already has sued IBM(IBM), charging Big Blue with a breach of contract for misappropriating SCO's code in IBM's Linux business. SCO has written letters to Linux users asking them to pay for a Linux license but also suggested the previous refusal by Linux vendors to indemnify customers leaves it little choice but to sue users next.

H-P said it will take over any litigation or defend any claims on behalf of its clients who have acquired Linux on an H-P server or workstation as of Oct. 1, at no additional costs to customers.

"They [H-P] think they're not going to have to spend a lot of money, if any at all," C.E. Unterberg, Towbin analyst Katherine Egbert concluded about H-P's move to indemnify. "They aren't going to put themselves on the line for millions or billions of dollars."

"No. 2, H-P also says they're committed to Linux no matter what," she added. "It gets any customers who might have been concerned about SCO over that hurdle." Egbert does not cover H-P or SCO and just upgraded her rating on Red Hat to buy from market perform this week. Her company has done banking with Red Hat.

But SCO put its own spin on H-P's move.