Novell (NOVL) shook up the software industry with its surprise announcement Tuesday that it will acquire No. 2 Linux (news - web sites) distributor SuSE for $210 million.

The deal, which includes a $50 million investment from Linux champion IBM (IBM) into Novell, breathed new life into Novell. Its shares rose as much as 40% before closing at $7.33, up 21%.

Novell could help Linux take off in North America as it has in Europe, Asia, Australia and South America.

"This solidifies Novell's platform strategy and gives them a chance to possibly flourish," says Rob Enderle, technology analyst at Enderle Group.

In the early 1990s, corporations favored Novell's NetWare server software to build out PC networks. But NetWare lost its lead to Microsoft (MSFT) Windows NT.

And in the past two years, Linux - the computer operating system whose open-source code is continually improved by volunteer programmers worldwide - has become the fastest-growing PC network software.

In recent months, Novell has been developing versions of NetWare to run on Linux. In August, it acquired Ximian, which makes e-mail and other open-source programs for desktop PCs.

The acquisition of Nuremberg, Germany-based SuSE gives Novell an in-house source for Linux desktop and server operating systems. SuSE has grown to 399 employees and $35 million in annual revenue, selling Linux PC networks mainly to European customers.

Combined with Ximian, SuSE gives Novell a full line of Linux products to compete against Microsoft.

"Linux no longer needs to stay on the periphery," Novell CEO Jack Messman told reporters in a phone conference.

Novell's new footing comes at a crucial juncture. Microsoft last week unveiled parts of its new Windows operating system, code named Longhorn.

The software giant promised spectacular advances in productivity, the result of tightly integrating cutting-edge features across a breadth of next-generation products. But Longhorn isn't expected until 2006.

In the meantime, Microsoft will attempt to preserve its 94% share of desktop PC software and steer as many customers as it can to Longhorn, analysts say.

Novell could disrupt Microsoft's plans, says RedMonk analyst James Governor.

"Companies that feel there are too many Microsoft upgrades, patches and licensing policy changes now have a viable alternative," he says.

Novell, to be sure, has flubbed previous strategic thrusts. But tech analysts credit Messman and Vice Chairman Chris Stone for keeping the company's loyal customers and partners and amassing $739 million in cash.

Microsoft and No. 1 Linux distributor Red Hat (RHAT), based in Raleigh, N.C., have yet to act.

"Novell is acknowledging the success of our model," says John Young, Red Hat vice president of marketing.

"It isn't time for us to abandon that model."

Red Hat shares, up 142% since midsummer, closed 12% lower at $13.58. Microsoft closed at $26.07, off 2.3%.

Source: Yahoo News

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