Red Hat Stock Tumbles on Oracle Discount Support Offer
Shares of Red Hat Inc. tumbled nearly 30 percent Thursday as investors abandoned the stock on news that software juggernaut Oracle Corp. will move more aggressively onto Red Hat's turf.
Oracle's brawn poses a large threat to an undersized Red Hat, which has long benefited from a relative shortage of competition in the Linux sector.
Unlike Microsoft Corp.'s market-dominant Windows operating system, Red Hat distributes the Linux system for free. The company makes money by selling service and support.
Oracle CEO Larry Ellison announced Wednesday that his company will offer support for Red Hat's products -- with a 50 percent price discount.
Analysts sent out a series of downgrades for Red Hat. Soleil Securities lowered its Red Hat price target to $11.50 from $19.
"Current and prospective Red Hat customers now have an alternative for support from a larger, more experienced vendor and can easily convert their support contracts to Oracle, save money, and receive more important benefits ... " wrote Credit Suisse analyst Jason Maynard. He downgraded his price target to $14 from $29.
Red Hat shares plummeted $5.80 to $13.72, a 29.7 percent decline, in morning trading on the Nasdaq Stock Market.