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Intel, Netscape stake Linux?

The two firms and at least two VC companies are preparing to announce a deal today with Red Hat Software, distributor of a version of Linux.

Intel, Netscape, and at least two venture capital firms are said to be preparing to announce a deal today under which they each will take an equity stake in software vendor Red Hat Software, the North Carolina-based software vendor that distributes a version of the Linux operating system.

Sources close to Red Hat said that a deal for a cash infusion from Intel, Netscape, and two venture capital firms will be announced today. The exact terms and conditions of the deal were still being worked out as of yesterday.

"There is going to be a deal," one source said on Friday, but then added, "There are no numbers yet." Red Hat is privately held.

Kevin Harvey, a partner at Benchmark Capital, a Menlo Park venture capital firm said to be involved in the deal, laughed before declining comment on any deal and added: "Red Hat is a great company. We are believers in the future of Linux."

Regardless of the exact terms of the deal, all three companies stand to gain in this tripartite alliance. Support from two significant computing companies will clearly give greater market presence to Red Hat.

At the same time, Netscape and Intel will be able to strengthen their ties with Web developers and small- and medium-sized companies. These developers form the core of the Linux believers and their numbers are growing.

If an equity deal goes through, it would likely represent a shift in Intel's relationship with Microsoft, as well as its software investment strategy.

Linux, a Unix-like operating system, has been gaining ground with users and is increasingly seen as a competitor to Windows NT.

A direct investment also would slightly change how Intel has worked with operating system software companies. Generally, Intel provides these companies technical and marketing support. Intel, for instance, provides marketing support to Be Incorporated, maker of the Be OS.

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So far, the company has not invested directly in operating system vendor companies, according to an Intel spokesman. Most of its equity investments in software companies have been in application or content vendors. Neither Intel or Red Hat would comment on any deal.

Nathan Brookwood, processor analyst at Dataquest, who did not have information on any deal, said it makes sense on a certain level. Intel is trying to expand its presence in the server market, which in turn means greater alliances with Unix vendors.

"Intel is very interested in Linux. It's very popular in the low-end Web server market and that is a market that Intel cannot ignore," he said. "Intel needs to forge other alliances."

"Just as Microsoft wants to support a variety of chips, Intel wants to support a variety of operating systems," added Michael Slater, founder of MicroDesign Resources.

Linux was initially released in 1991 when creator Linus Torvalds was a student at the University of Helsinki. It has since grown into a Net-based software phenomenon, with millions of users counted as converts and countless software additions submitted to various ad hoc Linux Web sites for use.

Executives from Intel, Netscape, and Red Hat are currently scheduled to appear on a panel at ISPCON in San Jose, California, this afternoon. ISPCON is a conference centered around Internet service providers. Details of the transaction are expected to follow the presentation, which starts at 2:45 p.m.

Sean Maloney, Intel vice president and director of marketing, will appear with Marc Andreessen, executive vice president of Netscape, and Robert Young, CEO of Red Hat. They will speak on "Linux and the Open Source Business Model of the Future."

The convention also will feature a public demonstration of Linux running on Intel servers.

Intel is an investor in CNET: The Computer Network, publisher of News.com.