Slashdot Mirror
Red Hat Vs. The Lawyers
ajs writes "On July 13, Red Hat announced that they would be re-stating their revenues for the last 3 years. This sent a shock-wave through their stock price, but early analysis seems to indicate that it's not that big a deal (the end-result is the same for a given contract, but it will be counted toward a different month). But then the really bad news hit. [Opportunistic lawyers] are taking this opportunity to punish Red Hat for reporting the change and the resulting drop in price. Red Hat is doing well, but can they weather major class action law suits without harming the business? How have other technology companies dealt with this sort of suit?"
Rad Hat has annual revenue of less than $150 million. And a market cap just south of $3 Billion. A price/sales of 20. I'm sure Red Hat is a good business, and will continue to grow, but they have to grow a lot to justify that price. And since much of their revenue is for service, their costs will grow as their sales grow (in contrast to Microsoft's Windows monopoly, which requires very few marginal expenses for each sale). Nice company, can't imagine their stock will be much higher in 5 years.
I wish , just once.. a company I owned stock in would restate their books in a positive manner... ie: oops, we forgot to count that extra 200 million worth of revenue.
That'd be a pleasant change.
From reading the submission blurb it seems that those impeccable white knights on horse just made a mathematical error (must've been using an older kernel) and the resulting slump is pure emotion by the investors.
Well, it's not. RedHat's Q4 2003 earnings are now $0.02 instead of $0.03 which is either a 33% or 50% reduction, depending on which way you count, and the stock fall represents just portion of that.
Also, even after fall, Red Hat trades at 133 P/E, which is way overvalued even for this sector (MSFT, for example, is at 40.59).
People don't like to be lied by management when they invest their money into the company, and people will launch lawsuits when they deem something inappropriate had been done.
Isn't it just grand how thousands of very intelligent geeks spent countless hours creating and improving Linux and Red Hat, and now a bunch of doughy, pasty-faced vultures at "Goodkind Labaton Rudoff & Sucharow LLP" will rake in an assload of cash from this?
God, I really hate the American legal system.
Well even if the SEC weren't involved, Redhat had a rough 2004 by pulling the plug of the redhat distro in favor of the corporate version and fedora. I know so many diehard fans going the way of debian and suse. Losing fan base will kill your company faster than the SEC.
RedHat was following the rules (particularly the ones about switching auditors), and their new auditors convinced them to use a slightly different accounting method for their subscription accounting. It looks as if their previous accounting method was not neccesarily incorrect, flawed, or false - just different.
How is it that someone can bring a class action lawsuit against a company for changing their accounting practices from one one allowed method to another allowed method?
"Great men are not always wise: neither do the aged understand judgement." Job 32:9
Huh? Reports are that SCO is being investigated by the SEC...
See This story on Newsforge for some info about it, reported back in March...
Insanity is a gradual process; don't rush it.
I think the Motley Fool article is right. The drop in the stock price makes Red Hat a good buy right now.
The downside is the frivolous lawsuit. In the end RH should prevail, but it will spend a pretty penny defending itself. I'm all for class-action lawsuits when they are appropriate. This one against RH is not.
Tort reform is one of the few issues where I side with Republicans. Fair implementation is going to be the hard part.
This isn't the typical "ooops, we recognized all the revenue of that 5-year contract this quarter" shin-an-igans that you typically read about - this isn't that huge of change - as referenced in the article, take a look at the restatement table and the net income/loss per share hardly changes.
Hulk SMASH Celiac Disease
For many tech companies, fan base = customer base. Or at the very least, the fan base strongly influences the purchases made from the customer base.
Lose the fan base, there's a very good chance you'll lose your customer base. Customers are fans, too.
Insanity is a gradual process; don't rush it.
I patently reject your characterization of me as an "ambulance chaser." I am one of the many investors who lost significant amounts of money in redhat stock,
.com bubble bursting, not a trivial restatement of earnings. The only thing you can claim to have lost as a result of this is today's change in price.
Waah. I bought in on the day it opened at about 50, got out of half of it at 300 (pre-split), and kept the rest. The paper losses are a result of the
But, by all means, please do sell while it's undervalued, I'll be buying up your shares. Any lawsuit here is strictly driven by greed, either yours for not knowing when to get out (welcome to the stock market, it's gambling, deal with it), or (ahem) somene else's greed in trying to hurt the competition.
Class-action suits against a company for mickey-mouse bullshit is repulsive. If the company was actually doing something sleezily financially bad (eg enron) or dumping arsenic in the public water supply, then these class-action suits are deserved. But suits merely because of stock-price slippage are pathetic. I bet you wouldn't give 2 shits if the same tactics you decry redhat of have earned you money. But since you lost, you can't blame yourself, you're too smart to have made a bad decision. Yeah, blame redhat.
It's asshats like yourself that have destroyed the society and culture that used to exist in the West. Now companies first priorities are their investors, not their customers nor their product. It's pathetic, and that's exactly the reason why all prime-time TV is the same and sucks, why restaurant chains and consumer food companies use shoddy unhealthy (but cheap) ingredients (eg high-fructose corn syrup and MSG), etc. Because the companies have to look after your ass because you invest in them.
I think if you invest in a company, you should that company and have to bide by it's decisions. If those decisions make the stock go down (as long as it's ethical) than tough shit. Now the lawyer in you is probably defining 'ethical' to mean whatever takes care of investors the most. If you are thinking that, then you REALLY are a lifeless asshat that is destroying our society.
Customers are often far more pragmatic then fans. When Red Hat ditched Red Hat Linux in favor of RHEL, the fans whined and went to Debian, whereas customers thought for a moment and realize RHEL had better support and were therefor happier.
"I use a Mac because I'm just better than you are."
About a month ago, Red Hat suddenly lost their CFO. Immediately thereafter, they pre-released earnings in order to cushion the blow. Now we find out two things: (1) the day before the CFO left, their auditor complained about their accounting practices, and (2) they recently received a request for information from the SEC. They didn't announce either of those facts during their extraordinary earnings release or at any time since then.
Like it or not, those are both material facts. No, the accounting change isn't all that significant, and yes, most SEC audits turn out fine, but that is irrelevant. They did things to prop up their stock price, and didn't publicize all the news, limiting themselves to the better news. To the extent that they propped up their stock price by selectively releasing only positive informaion, they're in violation of their fiduciary responsibility to their shareholders.
Blaming the ambulance chasers for Red Hat's misbehavior is like blaming Janet Reno for Microsoft being held in violation of the Sherman Antitrust laws. Just like MS, Red Hat did this to themselves; the attorneys are just doing their jobs by trying to hold crooks accountable for their crimes.
First, my opinion is that Red Hat is coming back from this hardship nicely. They are doing an excellent job of determining where their holes in product lines are and filling them.
;-)
I was one of the very vocal opponents of Red Hat dropping their standard distro in favor of Fedora, but I have largely changed my mind.
The only real issue is that one of my RedHat servers is running 7.x because Red Hat 8 had a glibc bug that prevented one of the programs from working properly, and upgrading to Fedora is going to be *tough.* I wish they made it easy at least to upgrade from RH9 to Fedora (Hear that RedHat?).
Now regarding this lawsuit, the SEC, etc. I find it encouraging that they are stating that the SEC must *review* (not *investigate*) their accounting statements. In other words, the SEC must probably approve the changes.
OTOH, the investigation into SCO so far looks more serious. It seems plain that the SEC is conducting a mostly secret investigation, as evidenced by the reports of Baystar being investigated for their involvement. In otherwords, the review of RedHat's papers is routine, while the investigation of SCO is serious stuff.
Yes, this is your tax dollars at work, and they are working pretty well
LedgerSMB: Open source Accounting/ERP
If you were stupid enough to sell for less than what you purchased the stock for, that's your own problem.
This is insightful? Give me a friggin break moderators. Have you ever invested in the stock market before? If you buy the stock and the price starts to go down, you have a choice -- if you think it's going to go down more, you can limit your losses and sell. If you think it's going to go back up, you ride out the bad times. Sometimes you make the right choice. Sometimes you make the wrong choice. Calling someone stupid for selling a stock for less than what they bought it for is ridiculous. What's stupid is holding onto that stock, when all indications are that it will never rise again, just because you don't want to sell at a loss. And from looking at RedHat's stock profile since its IPO, it looks a bit unlikely that RedHat will ever again achieve the highs it once hit.
My advice: grow up.
Sometimes you lose money on a stock. Sometimes you make money on a stock. That's true for everyone.
But everyone doesn't go crying to a lawyer every time they have a problem. Only a certain kind of person does that -- not the good kind.
I suggest if you really want your money back, you should just go rob a liquor store. As you point the gun at him, you could explain to the clerk that you're doing it because you're a victim of a small disagreement in corporate accounting methods.
Or you could earn it, like -- well, like a grown-up.
umm... did you read the article? they are being responcable and the changes being made are the way they are counting some types of revenue. all the are doing is counting is daily instead of weekly/monthly ect. The reason newsworthy and was reported to the shareholders is because it gives insight into thier acounting practices and it is thier responcability to justify any changes to the apropriate officials including sharholders.
To put this in a more simple way, this is like you having a lemonade stand and counting your sales every week or month and then deciding to count them daily. the end result is the samer in the acounting proccess but now you have more of an insight into your daily operations.
If microsoft or SCO was doing somethign like this, of course there would be some scepticizm on the motives but the end result would be the same. "it is nothing". I would also bet that the only reason the SEC is even interested in this is to cover thier own asses if somethign turns wrong later. Lets wait for somethign actually bad to come out of thier investigations before we start trolling. Well i guess troll is to strong of a word for your comment. Somethign like quick to show you didn't RTFA or understand it is more reasonable. Besides the lawsuite is by lawers claiming to represent shareholders causing the problems in question, not the SEC. It would be interesting to find out how many sharholders actually feel they have been wronged by a proceedural change the has the exact saem end result. It will be even more interesting to find out the reasoning behind any legitamit judge not throwing the case out based on it merrit.
Unless somethign is being said or done here that isn't in the article or any of the coresponing article at redhats site, i don't see it gaining any traction. But then i'm not a lawer so i wouldn't know how to suite a companie for doing somethign by the books as the law states (ie.. reporting a change in the way they do thier acounting) especially when the change doesn't really change anythign as far as thier statments are concerned.
Red Hat will come out unscathed if they go with the precedent set by the current OS market leader in recent class action suits. They should arrange a settlement where they give coupons for free copies of Linux to the shareholders and random unrelated school districts.
If you have yum. I swear to god... I did a fresh install, pointed yum at the appropriate mirror, and did a dist-upgrade. The only thing it didn't fix was the /etc/redhat-release still being used in the /etc/issue* banners.
THIS THING CAN TURN ON A DIME, MACROSSZERO STYLE ALSO FUCK BETA, ~NYORON
Yes some red hat 'fans' left but I monitor 3 of fedora's lists and I can tell you there is no shortage of suse/mandrake and a few Debian converts. After the initial "red hat shot my dog" emotional rants people settled down about the whole thing. Check out distrowatch Fedora has 1100 hits per day, second most popular distro behind Mandrake and It's only 9 months old; that's not exactly what I call 'abandon ship' everyone seems to be saying.
-- "of course thats just my opinion, I could be wrong." --Dennis Miller
I just don't get it. With fedora, I'm getting the same deal I was getting with the distro when it had redhat slapped on the label. I get a full OS, the price is right, in my case a few bucks plus shipping, and free security and enhancement updates. When I am stuck on something I go look on google. When I had a boxed set with RH on the label, it cost me 60 clams, and I got free security and enhancement updates. The only difference is I got some redhat stickers and a dead trees version of the manual. When I got stuck on something back then I went and looked on google. I have a better distro with more stuff than two years ago, and it costs me less, so I should be mad at redhat and..huh?
You make money from free software primarily by using that software in your other, *real* business, building/selling/servicing widgets.
Redhat got two versions,one sorta free kinda,and one really really free,and it actually costs them to provide it. One for businesses who are theoretically making enough money using computers somehow to be able to pay a fee for the "pro-commercial" version, and another one for hobbiests and enthusiasts who agree to help out and help develop and look for bugs, etc. Seems reasonable to me.
I don't see what the big negative deal is really. Either version works, the pro version has a different and more tweaked server and some other doo-dads obviously, but you get more support. The really free version has everything you need as well, just somewhat different, I mean apache is apache and whatnot. The money has to come from someplace. I think they made the right move, to both stay in business and keep getting better, and to offer the most to the most people for the most purposes (and most budgets to boot). It's not perfect, but what is?
Uhm, did you even read the article? They didn't lie about their earnings. Their overall earnings remain constant. Whats changing is when they are counting their income on individual subscriptions. Instead of it being agregated monthly it's going to be amortised over the life of the contract on a daily basis so that it matches up with the losses incurred for the contract. The previouse methodology was in no way weird, non standerd nor sneaky. This way is just better.
Realities just a bunch of bits.
Perhaps, but that's nothing compared to what you lose if you suport things you know to be wrong just because you hope to thereby get money.
-- MarkusQ
Have you considered that the lawyers in question stand to make between 35 and 50% off the top of the settlement? So many companies settle out of court these days, trying to avoid bad press, that it's worthwhile for these bastards to file every single lawsuit they can. A few will pay off huge, many will pay off some, and they'll take their fee right off the plunderings, er, judgement...
At the bottom of the endless pile of paper work which characterizes all regulation lies a gun.
Alan Greenspan
This kind of biased editorializing that has been pointed in the past but why not point it out again: I don't remember the anti-MS California class action attorneys being labeled "ambulance chasers." What bothers me more though is just any old lawyer being called an ambulance chaser. Sharks, maybe. Ambulance-chasers, no. It reminds me of when people call liberals "terrorists" because they are anti-war. I don't care if you think they are bad because they are anti-war, but don't use some irrelevant word. Same thing goes here. Ambulance chasers are laywers that solicit clients soon after personal injury. Anyway, it doesn't look like the class has been certified. It could be this case goes nowhere and it doesn't even cost RH that much (relatively). (Don't mod me troll because I mentioned lawyers, liberals, and M$ in the same post :P)
Actually, no, I wouldn't be "hooting and hollering." I like to see Microsoft get its ass kicked, sure. Who doesn't? But I like to see Microsoft get its ass kicked about the things for which it *deserves* it. Such as, in no particular order:
- Security - or the lack thereof - in IE, Outlook, Exchange, and Outlook Express.
- Clippy and his dolphin kin in Japan.
- Fundamental design choices that make decent security apparently effectively impossible in Windows
- Integrating the browser into the OS (partly covered by those design choices)
- Monopolistic and anti-competitive behavior. If I were an independent developer selling a Windows app, or a small company doing the same, I'd be really scared, especially if MS made a buyout offer and I didn't want to sell. Time and again, their next move has been to do everything possible to destroy potential competitors through underhanded means. Even when I was a Microsoft supporter and though Bill Gates was a genius (up to 1997, when I tried Linux for the first time), I found a lot of MS' business practices to be pretty distasteful.
- Having to reboot if I change the netmask. This would be more understandable if I also had to reboot if I changed the IP address, but I don't. Just if I change the netmask.
- The way every version of Windows tries to be more helpful and thereby becomes more of a hindrance. The one Windows box I still run uses Windows 2000 and I have no intention at all of "upgrading" to XP.
- Failing to innovate IE to the point where it is now the least capable major browser in the market.
- Spreading FUD and lies rather than even thinking about competing on merit.
- Being unable to compete on merit.
- Losing tons of server market share, and even a little desktop market share, to Linux b/c it can't compete on merit.
*However* - I do NOT want to see even Microsoft being ripped off by a bunch of ambulance chasers filing a bogus class action lawsuit because they restated how their earnings are calculated - and that, if you RTFA, is all Red Hat has done: restate how their earnings are calculated. Their earnings have not changed.
I want to see Microsoft beaten, crushed, and generally humiliated in the marketplace, sure. But I want to see it happen fair and square, not through the kind of tactics MS itself routinely uses on others.
And yes, as a matter of fact, I do believe MS is behind this suit somewhere, just as they were behind the SCO suit, and it will come out eventually.
From what I read, they switched the accounting of their subscriptions to a finer granularity. In the end, the result should be mostly the same, but they have to announce the change in accounting practices. Now they're going over their books with they new model, recalculating their revenues, and get slapped with a lawsuit.
Both accounting practices are legal, so where is the messing? I think that lawsuit is bogus and just a means to drain resources from Red Hat...
Regards, Ulli
Simple things should be simple, complex things should be possible.
First, my opinion is that Red Hat is coming back from this hardship nicely. They are doing an excellent job of determining where their holes in product lines are and filling them.
I was one of the very vocal opponents of Red Hat dropping their standard distro in favor of Fedora, but I have largely changed my mind.
Of course they decided to restructure their product line. Revenue from the retail products didn't make a dent in their operating costs, whereas enterprise sales have quadrupled in 4 years.
But still, keep in mind that RedHat isn't really a software company just yet. With 90% of their >$1B capital invested in (and 3/4ths of their $14M profit coming from) bonds and other securities, they are still more of an underperforming mutual fund than a successful company.
But it definitely seems likely that a couple of years from now their profit from RHEL is going to overtake the investment revenue.
-a