Goldman Sachs: Fear the Penguin
By James Maguire www.NewsFactor.com, Part of the NewsFactor Network January 15, 2003
Goldman Sachs believes that Linux' emergence "will most directly benefit independent PC semiconductor companies (Intel and AMD) and Intel-based server businesses (Dell)."
Linux will emerge as the dominant operating system in corporate data centers, according to a new study by Goldman Sachs (NYSE: GS). According to the study, IT buyers will use Linux to take advantage of lower-cost, higher-performance Intel-based servers -- and to avoid "premium-priced proprietary systems." Eventually, systems running Linux will displace systems based on Unix and RISC processors.
"Many observers confine Linux's enterprise opportunity to the market for low-end 'edge' servers such as file, print, Web, and e-mail servers," the study, entitled "Fear The Penguin," notes. "But we are confident that the technical developments and market forces are in place for it also to become the dominant OS on the higher-end servers of the enterprise data center."
Linux-on-Intel
Forrester (Nasdaq: FORR) research director Josh Walker agreed that Linux is on a path to dominate the data center. "The cost pressures that IT departments are under makes Linux a very compelling purchase," he told NewsFactor.
But Walker said he believes that although Linux will displace many high-end systems, it will not replace them all. "There will always be the 20 percent that require the high overhead of better load balancing and fault tolerance" of RISC-based units, he noted.
Winners and Losers
Goldman Sachs believes that Linux' emergence "will most directly benefit independent PC semiconductor companies (Intel and AMD) and Intel-based server businesses (Dell)." It also will benefit "open" infrastructure software vendors, such as BEA Systems (Nasdaq: BEAS) , BMC Software, Oracle (Nasdaq: ORCL) and Veritas.
Yet the rise of Linux will have a mixed impact on proprietary systems companies like Hewlett-Packard (NYSE: HPQ) , IBM (NYSE: IBM) and Sun Microsystems (Nasdaq: SUNW) , the study says, also claiming that "it may negatively impact overall software pricing."
While Red Hat (Nasdaq: RHAT) is "well on its way to establishing a definitive standard for enterprise Linux," Goldman Sachs acknowledges, "we also believe it is primarily a service provider and that it should be valued as such."
Pace of Adoption
The study also notes that while many observers expect Linux' emergence to be rapid, it is instead likely to "follow the more measured pace of server hardware upgrade cycles."
One important factor slowing adoption will be lagging support from packaged Linux application vendors. On the other hand, "Trends such as server consolidation and wider deployment of J2EE-based computing models could significantly accelerate rates of adoption," the study suggests.
Linux vs. Windows
Unlike in the server market, Goldman Sachs believes Linux will not win market share from Microsoft (Nasdaq: MSFT) in the desktop market in the near term. Forrester's Walker agreed, saying that "the cost savings [of switching to Linux] would be very high, but companies shy away from that because of the training needed."
However, the study notes, Linux will "hamper the movement of Windows into the enterprise data center, an area that Microsoft has only recently begun to target for growth." It will do this by providing an easier migration path from current Unix-based deployments.
"This shift will limit Windows' market opportunity in the data center for both its OS and its applications that run on that platform," the study concludes.
***********************************************************************y Posted by N.S. Soundara Rajan, Freelance IT journalist, Columnist "Deccan Herald", Spoken English Teacher and Knowledge networker
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