The release of Red Hat Enterprise Linux 5 in March should strengthen Red Hat's lead in the open-source software market and fend off challenges from Oracle, Microsoft, and Novell, an industry analyst said.

After meeting with Red Hat executives Friday, W.R. Hambrecht & Co. financial analyst Robert Stimson wrote in a research note Monday that he is "confident that Red Hat will remain the premier Linux player despite recent competitive hoopla."

Red Hat's stock price declined in October 2006 when Oracle announced it would undercut Red Hat on the price of support for Red Hat's open source Linux distribution. That was followed in November by news of a collaboration between Microsoft and Novell. Microsoft said it would work with the Linux distributor to make Windows interoperable with SUSE Linux. Microsoft said it will also help market SUSE to its customers.

While those developments caused Red Hat's stock price to dip below $15 a share, from $27 before the news, they "have had little to no effect on Red Hat's underlying fundamentals," Stimson wrote. Red Hat stock closed Monday at $22.54.

Hambrecht forecasts Red Hat to finish fiscal 2007, which ends Feb. 28, with earnings per share of $0.51 on revenue of $401.6 million, up from $0.39 a share on revenue of $278.3 million in fiscal 2006.

Expected new features of Red Hat Enterprise Linux 5 include an integrated server and storage virtualization capability that should be competitive with industry-leading virtualization software from VMware, Stimson said in an interview. Red Hat 's virtualization software uses just 3 percent to 4 percent of a server's CPU to run, versus 20 percent or more for VMware, he said. That makes Red Hat better able to run multiple software applications on one physical server.

Stimson considers the competition from Oracle and Microsoft/Novell "a nonevent so far" as he's seen little evidence that Oracle is winning support business away from Red Hat.

Oracle did not reply to a request for comment.

Stimson has seen a "backlash" in the open-source community to the Microsoft/Novell arrangement. He noted that all five members of a Novell software development team quit Novell after the Microsoft deal was announced, and four of them went to Red Hat. They were working on the Samba Project, developing an open-source file and print server software product than can run on a Windows operating system.

"I think (Microsoft/Novell) is tainted now because I think they are violating [the] GPL," said Jeremy Allison, the fifth member of the team to quit Novell in December 2006. He went to Google but emphasized that he was not speaking for Google on this subject.

GPL stands for General Public License, the contract that keeps open-source software open.

Analyst Stimson said the Microsoft/Novell partnership has only strengthened Red Hat's position in the market because of the reaction from others in the open-source community.