Rumored SAP-Red Hat merger seen as a long shot

It just wouldn't make sense, analysts say

Rumors swirled once again this week regarding a possible takeover of Red Hat, this time by SAP, but a number of industry observers said Thursday that the prospect is unlikely at best.

"There seem to be so many more directions that make more sense" for SAP, such as the enterprise mobility strategy it is pursuing through its recent acquisition of Sybase, said 451 Group analyst China Martens.

In addition, SAP executives have repeatedly said they recognize that their customers have heterogeneous IT environments. Buying up Red Hat, which has virtualization, middleware and Linux operating-system technologies, clearly wouldn't mesh well with that approach, Martens said. "Doesn't that take them right into stack city?"

Redmonk analyst Michael Coté expressed a similar view. "SAP doesn't buy systems-level infrastructure [vendors]. Sybase was one of the lowest-level in recent times," he said.

Nonetheless, "it is kind of a crazy time" in enterprise IT, with vendors "scrambling around" to broaden their technological footprints, Coté added. He pointed to the likes of VMware getting into application development by scooping up SpringSource, and Oracle's entry into hardware through the Sun Microsystems acquisition.

But Coté sees another reason to be highly skeptical of a Red Hat-SAP merger. "Until very recently, SAP was not open-source friendly. Of all the companies you could buy, Red Hat is the most open-sourcey," he said.

Moreover, although there are strong open-source evangelists within SAP, they are "not the ones steering the big ship," said independent analyst Jon Reed.

If anything, SAP and Red Hat will continue to build on their long-standing partnership, said Altimeter Group analyst Ray Wang.

Buying Red Hat would send customers mixed messages regarding the future of certain technologies, particularly SAP's NetWeaver middleware platform, Wang said. At a recent event to discuss the Sybase deal, SAP CTO Vishal Sikka took pains to stress the company's continued commitment to NetWeaver.

Beyond giving it the problem of rationalizing overlapping products, adding more middleware makes little sense for SAP strategically, Reed said. "When they lose a deal, it's not because of Oracle's middleware."

Meanwhile, buying Red Hat, which reported US$748 million in revenue for its fiscal 2010, would likely require a significant sum of money. But SAP has shown it is open to large deals, paying about $6.8 billion for BI (business intelligence) vendor Business Objects and around $6 billion for Sybase.

Still, one must consider the nature of those purchases, Reed said. "It's not about compiling a stack, it's about [capitalizing on] emerging trends."

If SAP is going to make any more major acquisitions, it would be wise to purchase an experienced SaaS (software as a service) provider, Coté said. SAP's SaaS offerings include the Business ByDesign on-demand ERP (enterprise resource planning) suite as well as SaaS extensions for its on-premises installed base, but the strategy remains fairly nascent.

For now at least, SAP is probably most intent on fulfilling promises made at the recent Sybase event, such as its vow to deliver a mobile development platform within nine months, Reed said. "They need to do it."

Spokespeople for Red Hat and SAP said the companies do not comment on market rumors or speculation.

Chris Kanaracus covers enterprise software and general technology breaking news for The IDG News Service. Chris's e-mail address is

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Tags business issuesopen sourceLinuxMergers / acquisitionstelecommunicationapplicationsenterprise resource planningmiddlewaremobilenon-WindowsRed Hatoperating systemsSAPsoftware

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IDG News Service
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