In another victory for the open source software movement, Hewlett-Packard ( HPQ) announced Wednesday it will soon begin selling desktop computers that run on SUSE Linux from Novell ( NOVL). Novell shares soared on the news, recently up $1.23, or 13%, to $10.69 helped by news of the H-P deal and an upbeat report from rival Red Hat ( RHAT). H-P shares were recently up 28 cents, or 1.3%, to $21.67. On a conference call Wednesday, Martin Fink, H-P's vice president of Linux, insisted the move won't affect the company's relationship with Microsoft ( MSFT), which will continue to provide the vast majority of software for H-P desktop PCs. "We have a multi-operating systems strategy and this is an extension of that," he said. "Our Microsoft relationship is good, strong, powerful," Fink continued. "When 155 million of our 160 million
computer hardware systems out there ship with Microsoft, we need to maintain a very, very strong relationship with them." However, Fink also said the Linux desktop offering stands to lower the total cost of ownership for H-P's clients -- a development that, if true, would appear to put some pricing pressure on Microsoft. He declined to give pricing details. Microsoft stock was recently up 25 cents, or 1%, to $24.40, although the European Union's fine was also affecting Mr. Softee's shares. H-P will begin offering SUSE-Linux-based desktops in the second half of 2004. It already offers SUSE-Linux-based servers. Novell SUSE Linux will become H-P's standard Linux distribution across its business desktop and notebook PCs, starting in North America and rolling out across the globe later.
Just last week, H-P said it will offer Linux-based PCs in Asia that run on software optimized for supporting Asian characters from Japan-based Turbolinux. But the Novell-Linux deal announced Wednesday is "an event of a different magnitude," according to Roger Kay, director of client computing at market researcher IDC. "It's an important thing when a large PC hardware
original equipment manufacturer steps into the fray and offers a product as a standard part of its line because it will have a tendency to promote that growth." So far, Linux desktops have been most popular in emerging markets in Asia, Latin America and central Europe, which don't already have an extensive installed base of Windows-based PCs. But Kay said increasing support for desktop Linux from the likes of H-P could produce a "blowback effect that hits the U.S." over time. IDC forecasts that paid Linux client operating system new license shipments will grow at a compound annual rate of just over 25% between 2002 and 2007. Currently only about 2% to 3% of client operating licenses are for Linux. "Up to now Linux has been gaining in the server space, which probably dampened Microsoft's growth against Unix in that space. But the client has been sacrosanct," said Kay. Business customers feared that introducing a new operating system would create problems of interoperability with older PCs and make it hard for users to retrieve old files, he noted. "So Windows has a tremendous inertia holding it in place on the desktop on the commercial side." H-P aims to get around that problem by targeting computer users who work at relatively dumb terminals that don't need a high level of compatibility, he said. H-P's "basic statement to Microsoft is that this is business you wouldn't get anyway, so we're not taking bread out of your mouth."
H-P said it decided to expand its Linux-based PC offerings based on interest from Fortune 50 customers. So far, H-P said, the market seems to be for special-purpose applications, like call centers, support centers and help desks. Fink said H-P's new offerings would be targeted at PC users who run a single Web-based application, and maybe email and a Web browser. "They're looking for more of a thin client kind of a deployment," he said. "That's really where interest is right now, at least what I've seen in large corporate customers." A thin client usually refers to a stripped-down terminal with much more limited functions than the standard desktop computer that runs the Windows operating system. The alliance with Novell won't affect H-P's relationship with Red Hat, which offers Linux software for H-P servers. Red Hat doesn't offer software for the client market.