Less than three weeks ago I wrote about International Business Machines Corp. (NYSE:IBM) butting heads with Microsoft Corp. (NASDAQ:MSFT). Not only did IBM announce back then it was going to introduce Lotus Connections to compete with existing Microsoft software, but it also joined forces with rivals Intel Corp. (NASDAQ:INTC) and Hewlett-Packard Co. (NYSE:HPQ) to announce a new Linux cooperative, the Linux Foundation.

Today, we hear that IBM developed -- along with partners Novell Inc. (NASDAQ:NOVL) and Red Hat Inc. (NYSE:RHT) -- an "Open Client Offering" software that should allow for code (software) to be written once and yet still run on any operating system platform. It can help businesses lower the cost of managing Linux or Apple Inc.'s (NASDAQ:AAPL) PCs and it puts Windows alternative on a more equal footing with Microsoft's Windows software.

So after attacking its operating system and several of its applications, IBM is now trying to directly compete with the wider range of Microsoft's Windows-based application. IBM will offer its own Open Document Format (ODF) software for tasks like word processing, spreadsheets or presentations, the Firefox Web browser, as well as the other applications mentioned here.

For companies with just a few computers, Microsoft Windows and Office licenses costs can get up there. If the company also runs several desktop PC platforms, the costs are even higher. Technology market researchers Gartner and IDC estimate that it costs $4,000 to $6,000 to manage the average desktop PC of any office worker. For larger companies, this isn't a sum to be trifled with and if IBM can offer a cheaper alternative, they may switch.

Already Peugeot Citroen had agreed to a multiyear deal with Novell to run Linux on 20,000 desktop PCs plus 2,500 server computers due to the IBM Open Client Offering software. If this continues, what can Microsoft do?

Main market news here.

Online branding magazine, brandchannel.com, released its annual survey of top brands. Here are the top five: Google Inc. (NASDAQ:GOOG), Apple Inc. (NASDAQ:AAPL), YouTube (again from Google), Wikipedia and Starbucks Corp. (NASDAQ:SBUX).

Caterpillar Inc. (NYSE:CAT) just reported quarterly results. From initial quick numbers, it seems that it reported fourth-quarter profit of $882 million, or $1.32 a share, an increase of 10% percent over the comparable period last year, but below analysts expectations of $1.34 per share due to higher operating costs that offset increased sales.

The Maria Bartiromo/Todd Thomson (formerly) of Citigroup Inc. (NYSE:C) saga isn't over as CNBC now started to defend the anchor, according to the Wall Street Journal.

Toyota Motor Corp.'s (NYSE:TM) is narrowing the gap to with General Motors Corp. (NYSE:GM) to become the world's leading automaker as it said global production in 2006 grew (for a fifth straight year) by 10% to more than 9 million vehicles, while GM made 9.18 million, or 162,000 more than Toyota.

On Wednesday, News Corp.'s (NYSE:NWS) Twentieth Century Fox served Google Inc.'s (NASDAQ:GOOG) YouTube with a subpoena to disclose the identity of a user who uploaded copies of episodes of "24" and "The Simpsons."

A coalition of Microsoft Corp.'s (NASDAQ:MSFT) rivals which includes International Business Machines Corp. (NYSE:IBM), Nokia Corp. (NYSE:NOK), Sun Microsystems Inc. (NASDAQ:SUNW), Adobe Inc. (NASDAQ:ADBE), Corel Inc. (NASDAQ:CREL), Oracle Corp. (NASDAQ:ORCL), RealNetworks Inc. (NASDAQ:RNWK), Red Hat Inc. (NYSE:RHT) and others charged that Microsoft's new operating system Windows Vista will perpetuate practices found illegal in the European Union nearly three years ago.

Pfizer Inc. (NYSE:PFE) and Astellas Pharma Inc. resolved their dispute over Pfizer's top-selling Lipitor, the cholesterol-lowering drug. Astellas sales contract for the drug runs until 2016.

Microsoft Corp. (NASDAQ:MSFT) has not paid out this kind of money unless the company was settling a patent claim or antitrust judgment. The company is investing $400 million in its partnership with Novell [subscription required]. The partnership, announced last week, aims to get the Windows and Linux operating systems working nicely together on PCs.

MSFT will be paying for coupons so that corporate customers can get annual licenses to the Suse Linux operating system. It is, in essence, paying for the distribution of the open source software it has feared would take market share from Windows.

With Microsoft's new operating system, Vista, about to launch, supporting rival Linux would seem a queer thing to do.

Not necessarily. If Microsoft becomes the de facto largest reseller of Linux, it will have some measure of control over how fast the open source initiative can grow. Novell, Inc.'s (NASDAQ:NOVL) annual sales are under $1.2 billion, and its rival in the Linux market, RedHat, Inc. (NASDAQ:RHAT) has sales of well under $300 million.

Microsoft also got a promise from Novell that it would not sue Microsoft over Windows, presumably over any patent issues or monopoly practices.

And that, by itself, could be worth $400 million.

Douglas McIntyre is a partner at 24/7 Wall St.

Yesterday afternoon came a surprising announcement of partnership from two old-time rivals, Microsoft Corp. (NASDAQ:MSFT) and Novell, Inc. (NASDAQ:NOVL). The two said they would collaborate to build, market and support a series of new solutions to make Novell and Microsoft products work better together. That is, Linux Suse, the operating system distributed by Novell, would be able to work with Windows, Microsoft's operating system. Novell shares were up over 15% yesterday before the announcement on speculation/leaks.

Linux is a free open-source software platform, something Microsoft has been opposing for quite some time. In fact, Microsoft's very closed, almost paranoid approach to its proprietary software and code, as well as its dominance, probably caused the birth of Linux. In response to Microsoft's dominant position, programmers all around the world have developed a Unix-based operating system, collaborating and contributing to the system.

MOST NOTEWORTHY: Gap (GPS), Red Hat (RHAT) and Red Robin (RRGB) top today's extensive list of downgrades.

• Gap, Inc. (NYSE:GPS) was downgraded to Hold from Buy on valuation at Citigroup. The firm believes the 25% rally in the past two months had priced in much of the improvements at Gap.
• Red Hat, Inc. (NASDAQ:RHAT) was downgraded at Robert W. Baird to Neutral from Outperform following Microsoft Corp.'s (NASDAQ:MSFT) partnership announcement with Novell, Inc. (NASDAQ:NOVL).
• Red Robin Gourmet Burgers, Inc. (NASDAQ:RRGB) was downgraded at four firms this morning: CIBC, Friedman Billings Ramsey, Bank of America and Bear Stearns. The downgrade was based on weakness in new markets and a reduction in earnings growth.

OTHER DOWNGRADES:

• Qualcomm, Inc. (NASDAQ:QCOM) was downgraded to Neutral from Buy at Oppenheimer, citing disappointing guidance and indications that the licensing dispute with Nokia (NOK) could extend several quarters.
• Needham downgraded Powerwave Technologies, Inc. (NASDAQ:PWAV) to Hold from Buy after their weak fourth quarter report.
• Norfolk Southern Corp. (NYSE:NSC) was downgraded at JP Morgan to Neutral from Overweight. The firm cited valuation and competitive pressures from CSX Corp (CSX).

Analyst summaries provided by TheFlyOnTheWall.com (subscription required).

MOST NOTEWORTHY:

• Apple Computer (NASDAQ: AAPL) was removed from American Technology's Focus List citing valuation, but the firm is maintaining their Buy rating on the stock. The firm believes Apple's stock may reflect too much near-term cell-phone optimism and would rather wait for a better entry point to buy shares.
• Red Hat (NASDAQ: RHAT) was downgraded by First Albany, Jefferies and Prudential after the company revised their 2007 cash flow guidance.

OTHER DOWNGRADES:

• BMO Capital Markets downgraded Kellogg Co (NYSE: K) to Market Perform from Outperform citing limited upside potential. They believe increased competition and slowing growth of new product development could create less upside to the company's operating performance.
• BearingPoint Inc (NYSE: BE) was downgraded by Stifel Nicolaus & Co and Needham, citing increased risk profile and the recent adverse court ruling.
• Overstock.com Inc (NASDAQ: OSTK) was downgraded to Sell from Hold by Wedbush on the belief that a lower advertising budget will lead to fewer customers and orders. The firm also lowered Overstock's target to $14 from $20.
• J.P. Morgan removed MetLife Inc (NYSE: MET) from their Focus List citing valuation.

Research provided by TheFlyOnTheWall.com (subscription required).