Novell Jumps 21% on News of SUSE Linux Deal

But "I think Red Hat and SCO are in trouble as a result of the announcement," Perkins added, because "you now have a player that is further up the food chain."

The acquisitions mean Novell will be able to offer a more complete "stack" of Linux products, starting from the operating system from SUSE Linux to desktop products from Ximian, with a worldwide sales and support team that includes between 20,000 and 30,000 channel partners. Novell also offers security and identity management products, services through the acquisition of Cambridge Technology Partners and application development technologies through another acquisition, of Silverstream.

"We will have big differentiation with regard to products that sit on top of the operating system," Novell Chairman and CEO Jack Messman said on a conference call.

Novell's purchase of SUSE Linux, the No. 2 Linux vendor after Red Hat, gives investors an opportunity to diversify Linux investments and give customers more choices, a money manager in Philadelphia said.

That could put pricing pressure on Red Hat and also slow down the company's sale cycles if potential customers decide to wait and see what Novell offers, he said. The SUSE Linux deal makes Red Hat look overvalued because its shares were trading at roughly 20 times trailing sales before the SUSE Linux acquisition was announced, the money manager noted.

The deals also appear to compromise agreements between Red Hat and IBM, Deutsche Bank analyst Brian Skiba said in a note Tuesday. Skiba called the Novell news "neutral-to-positive" for SCO because resolving the SCO issue could become more important as IBM's commitment to Linux appears as strong as ever. Skiba has a hold rating on Red Hat and buy rating on SCO, and his firm hasn't done banking with either company but has done business with Microsoft.