Investors in Linux and open-source software distributor Red Hat (RHT) should not be worried that the company is competing directly with Amazon (AMZN) in Linux now within the enterprise, not just the cloud, urges Deutsche Bank's Karl Keirstead, who reiterates a Buy rating on Red Hat, and a $150 price target.
Keirstead, citing a blog post by Amazon's AWS's Jeff Barr from December 19th, in which Barr discusses " Amazon Linux 2."
The important thing in the post, writes Keirstead, and the reason investors might have some concern, is that the Linux distribution is meant not just for cloud but for on-premise deployments.
"The attribute that interests us most is the ability to deploy Amazon Linux on-premise on virtualized servers running VMware or Microsoft hypervisors," writes Keirstead. "Deploying software on-premise is an important move by AWS, thereby giving customers consistency whether running workloads on-premise or in AWS."
This is "hardly a good thing" for Red Hat, writes Keirstead. But still he urges investors not to "over-react."
Keirstead cites several caveats. One is that the software from Amazon is is "pre-beta" software, and the "full roll-out will take time," he writes.
Second is that the software is for "dev/test" deployment in enterprises, rather than production workloads, so he figures the software "may compete with free Ubuntu / CentOS more than paid RHEL."
The software is also more aimed at apps that are "built on-premise that are destined for AWS," so it's really for a "fraction of the market," in his view.
Also, Amazon hasn't shown much success so far in this market: An existing version of Amazon's Linux "has minimal enterprise traction against free Ubuntu and CentOS or even RHEL (paid Red Hat Linux), as RHEL-on-Cloud revs are now $200m+ and growing 40%."
Keirstead thinks this is really about "easing" the movement of workloads to the cloud. He also thinks it "further acknowledges" that Microsoft (MSFT) has an advantage by having a "hybrid" approach to IT, supporting both on-premise and cloud deployments.
However, Keirstead acknowledges that "this could also kick off a debate about what further on-premise moves AWS may make in 2018 and who would be impacted."