Red Hat Soars After Inking Deal With AutoZone

Red Hat will provide on-site consulting and support services to AutoZone as part of the retailer's plans to install a computer terminal system based on Linux software in its 2,800 stores.
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Shares of

Red Hat

(RHAT)

rose sharply Monday after the software maker announced it had reached a computer services deal with auto-parts chain

AutoZone

(AZO) - Get Report

.

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Red Hat said it had agreed to provide on-site consulting and support services to AutoZone as part of the retailer's plans to install a computer terminal system based on

Linux

software in its 2,800 stores.

Red Hat closed up 22 1/2, or 11%, to 236, down from an all-time high of 254 hit earlier Monday. AutoZone's slipped 3/8, or 2%, to 27 1/2.

Analysts said Red Hat's stock jump reflected investors' continuing enthusiasm for the prospects for the Linux operating system, which offers an alternative to

Microsoft's

(MSFT) - Get Report

Windows

. Red Hat is the leading distributor of Linux.

"This isn't a reaction to a deal with a relatively mainstream company like AutoZone,'' said Christopher Galvin, an analyst at

Hambrecht & Quist

, which co-managed Red Hat's initial public offering in August. "It's a reflection of the momentum of Linux operating systems and the open source market."

Red Hat shares have surged more than 1,600% since it went public.

The company, which is based in Research Triangle, N.C., attracted additional attention on Monday after the Nov. 29 issue of

PC Week

magazine reported that Red Hat was looking for new acquisitions and partnerships. The article set off speculation that Red Hat might be looking to acquire

Corel

(CORL)

, a Canadian software developer. Shares of Corel nearly doubled at one point during trading Monday. Corel closed up 6 11/16 to 20 7/8 after reaching a 52-week high earlier Monday of 27 3/4.

But Corel said it had not been approached by Red Hat, and Red Hat indicated that it was not interested in a takeover.

Red Hat develops open-source software and services, like Red Hat Linux operating system, which can be copied, modified and distributed with minimal restrictions.

"Red Hat is revolutionary because they make their money off servicing and support of their Linux-based software, not licensing it like most others," said Galvin, who maintains a buy rating on the stock.

The Linux operating system was the fruit of collaboration of hundreds of programmers working together on the Internet in the early 1990s to create free software.

Galvin suggested that the recent rush to Red Hat's stock could also reflect continuing fallout from the federal antitrust case against Microsoft.

Red Hat has been seeking ways to bring the Linux operating system to corporate computer networks, and the AutoZone deal is the latest in this effort. In September, Red Hat reached a similar deal with

Burlington Coat Factory

(BCF)

.

"Red Hat was the logical choice for AutoZone's network because we require a cost-effective and highly reliable operating system that can be upgraded easily," Jon Bascom, an AutoZone vice president, said in a statement.

AutoZone sells auto parts in 39 states and Mexico.