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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