In a bid to expand in the business process management (“BPM”) solutions segment, Red Hat Inc. (RHT - Snapshot Report) recently acquired Polymita Technologies S.L.’s BPM technology. The financial details of the deal were not disclosed.
The BPM technology will be integrated into Red Hat’s JBoss Enterprise Middleware segment. Red Hat has recently introduced BPM into its JBoss Enterprise Business Rules Management System (“BRMS”) platform. With this acquisition, Red Hat would have a more comprehensive product portfolio, which would help sales to its existing client base and also garner new customers.
The acquired technology will also support Red Hat’s cloud-based solutions and the company expects to convert certain parts of the software to open source, which 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 the new technology, as it would speed up the delivery of its integration products and services. Moreover, the solutions provided by Red Hat ensure a cost-effective business operation.
We believe that Red Hat is emerging as a significant player in the middleware segment. Red Hat has 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 deals were middleware-exclusive deals.
Additionally, the company’s offerings in the cloud-computing and server virtualization segments 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 financial prowess of rivals such as IBM Corp. (IBM - Analyst Report), Microsoft Corp. (MSFT - Analyst Report), VMware Inc. (VMW - Snapshot Report) and Oracle Corp. (ORCL - Analyst Report).
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.