Red Hat acquires Cygnus for the Microsoft offensive

Red Hat announced the $674 million acquisition of Cygnus Solutions today, intending to fuel its consultancy growth and take on Microsoft Corp in the handheld space.

Cygnus software runs handheld devices such as cell phones and it powers tiny computers embedded in other devices such as elevators and fridges. The distributor of the free operating system Linux is buying California-based Cygnus as much for its workforce as its presence in the handheld market.

Andy Dickens, sales director Europe said: "Cygnus has 180 employees which enables us to boost our global support and gain a foothold in Silicon Valley. It is a natural expansion into the consultancy market and we will have over 400 employees worldwide."

He continued: "Red Hat had no inroads in the handheld and notebook markets previously, but we have the ability now to get into embedded applications and we will see a big explosion there. IDC predicts that by 2002 there will be 55 million handhelds and notebooks."

Colin Tenwick, vice president & general manager European operations said that Red Hat has the capability to take on Microsoft in the handheld space, claiming: "We now have an operating system that will compete with CE."

The Cygnus acquisition is the first major buy since Red Hat's IPO last August. In June it bought a web development company, Atomic Vision, and in July, Delix, a German Linux distribution.

"We have now created one of the largest companies in the world dedicated to providing open source services," said Dickens.

Mike Thompson, research manager for Bloor Research, said that Red Hat is "becoming a player and the acquisition is for financial rather than technical reasons."

He added: "Solutions in the handheld market will be the next big thing and fears from the Linux community that Red Hat will dominate Linux are unjustified. They can't have it both ways. Red Hat brought Linux to the attention of everybody rather than just the technical geeks."

The deal should be completed by January 2000 in a stock for stock merger in which Red Hat will issue up to 6.62 million shares for the outstanding securities of Cygnus. Matthew Szulik, president of Red Hat, will head the combined companies as president and CEO.