Red Hat announced the acquisition of Qumranet. The acquisition includes Qumranet's virtualization solutions, including its KVM (Kernel Virtual Machine) platform and SolidICE offering, a virtual desktop infrastructure (VDI), which together present a comprehensive virtualization platform for enterprise customers. In addition, Qumranet's talented team of professionals that develop, test and support Qumranet solutions, and its leaders of the open source community KVM project, will join Red Hat.

This acquisition advances Red Hat's efforts to transform the virtualization market and drive comprehensive virtualization technology and management solutions into every system, from servers to desktops, on both Linux and Windows. Red Hat can now deliver what virtualization-only vendors cannot: a comprehensive solution integrated with the operating system, which can drive down IT costs while simultaneously enhancing the flexibility and responsiveness of IT infrastructure.

This acquisition adds to Red Hat's differentiated and comprehensive solutions portfolio for the virtual enterprise, enhancing the opportunities for customers to improve the productivity and reduce the cost of IT infrastructure. Red Hat's solution components include:

• The open source operating system, Red Hat Enterprise Linux, with built-in virtualization
• An embedded hypervisor which supports all major operating systems
• A consistent management platform for both virtual and physical systems, uniting servers, desktops, storage and networks
• A defining cloud and grid management solution
• Advanced, high-speed inter-application messaging
• High availability clustering solutions
• Integrated security infrastructure

These solutions will leverage the power of the open source innovation model, which permits the delivery of new capabilities faster, more reliably and with greater security and stability. All of the components of these solutions will also be delivered within an open framework to help promote plug-and-play compatibility with customers' existing infrastructure and third-party software.

“Red Hat customers enjoy highly responsive, flexible and cost-effective IT infrastructures,” said Jim Whitehurst, President and CEO at Red Hat. “This acquisition furthers our capability to widen the gap between open source and proprietary infrastructure software. Put simply, Qumranet's KVM and VDI technologies are at the forefront of the next generation of virtualization. They represent an opportunity to raise the bar and meet the market's demand for virtualization solutions.”

The Qumranet acquisition also extends Red Hat's virtualization solutions for managing Windows desktops. SolidICE is a high-performance, scalable desktop virtualization solution built specifically for virtual desktops, not simply a retrofit from server virtualization solutions. SolidICE is designed to enable a user’s Windows or Linux desktop to run in a virtual machine that is hosted on a central server. It is based on the industry-leading Simple Protocol for Independent Computing Environments (SPICE) protocol, which overcomes key barriers to VDI adoption, including a superior user experience enabled by the SPICE protocol capabilities.

“With this acquisition, Red Hat has clearly positioned itself as a competitor within the Virtual Desktop market," said Michael Rose, Research Analyst at IDC. "KVM not only represents a competent platform for hosting virtual desktops and other workloads, but protocols such as SPICE will increase the performance that users can expect to experience from their server-based computing environments, making the platform viable for a larger set of users.”

“Red Hat is a global leader in innovative technologies and has collaborated enthusiastically with us since the very beginning,” said Benny Schnaider, CEO at Qumranet. “I, along with the entire Qumranet team, am pleased to be joining Red Hat to create market-leading virtualization solutions. Qumranet's technologies, when combined with Red Hat's business, product and channel capabilities, will be well-positioned to provide virtualization solutions that really meet customers' business needs – for the server and the desktop. And, equally important, Red Hat's commitment to open source means that our technologies can be shared, improved and enjoyed by the entire open source industry.”

Under the terms of the transaction, Red Hat paid approximately $107 million in cash for Qumranet, a privately held company. The acquisition is not expected to contribute materially to revenue in the fiscal year ending February 28, 2009, but should add up to $20 million in revenue in the following year. Red Hat expects Qumranet operating expenses will be approximately $3.5-4.5 million per quarter before non-cash stock-based compensation expense, amortization expense and other charges resulting from the closing of the acquisition. The transaction is expected to be dilutive to FY09 GAAP earnings by $0.05 to $0.06 per diluted share and to FY09 GAAP cash flow from operations by $0.03-$0.04 per diluted share. UBS Investment Bank acted as the sole strategic advisor to Red Hat in this transaction.