In a bid to strengthen its middleware product portfolio,
Red Hat Inc.
) is set to acquire FuseSource, a provider of open source
integration and messaging, from
Progress Software Corp.
). The financial details of the deal were not disclosed, but Red
Hat does not expect the acquisition to impact its fiscal 2013
Headquartered in Bedford, Massachusetts, FuseSource's clientele
includes Fortune 500 companies like
) and Lynden to name a few. The product line of the company
includes Apache ServiceMix, ActiveMQ, CXF and Camel in the
Middleware is the software platform that facilitates the
development, operation and integration of open-source applications
and other software. Jboss, Red Hat's Java-based middleware
application, allows clients to develop and manage applications in a
Being open sourced, it can be easily integrated and customized
according to client needs. Red Hat's JBoss middleware offering is
being used by companies in the financials, healthcare and
networking sectors, among others.
Red Hat's middleware products and services would be well
complemented by the inclusion of FuseSource's product line as it
would speed up the delivery of its integration products and
services, while increasing the flexibility of use for its
We believe that Red Hat is emerging as a significant player in
the middleware segment. Red Hat boasts an impressive product line
up and expects to invest heavily on the development of innovative
products. Red Hat's expansion in the middleware segment makes sense
because around 40% of the top 30 deals of $1 million or more in the
last-reported quarter included a middleware component while just 3
were middleware-exclusive deals.
Additionally, the company's offerings in the cloud computing
market and server virtualization are expected to be incrementally
beneficial in the long run.
However, we believe that increasing investment may hurt margins
in the short term. Moreover, sluggish IT spending and significant
foreign exchange volatility will keep the stock range bound.
At the same time, we don't expect competitive pressures to
alleviate given the deep pockets of rivals such as
We maintain our Neutral recommendation over the long term (6-12
months). Currently, Red Hat has a Zacks #3 Rank, which implies a
Hold rating in the short term.
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