IBM To Buy Red Hat (Eventually): Jefferies Contends

At some point, IBM (IBM) is almost certainty going to buy Red Hat (RHT), according to Jefferies analyst Katherine Egbert.

In a research note this morning, Egbert wrote that it is “inevitable that Red Hat will be subsumed into a larger entity, probably IBM, given the strategic importance of [Red Hat Enterprise Linux} with the data center and a potential infrastructure price war between Oracle and Microsoft.”

Egbert repeated her Buy rating on the stock today, and upped her price target to $21, from $18. She says checks find solid demand for both RHEL and Jboss in the May quarter. She notes that the company has recently added a dedicated Jboss sales team in the U.S., and also beefed up its government sales force.

On a cautionary note, she points out that, given the pending Oracle acquisition of Sun, she says Oracle will inevitably favor Solaris over Red Hat Linux, “as Oracle seeks to protect the declining Solaris maintenance stream.” She notes that a third of Red Hat’s new business comes form Unix-to-Linux migrations. “The danger to Red Hat is that Oracle will offer customers attractive terms to stay on Solaris, potentially even paying them not to migrate.”