December 8, 2005

Revitalised Turbolinux spreading its wings

Author: Mike Newlands

Turbolinux, recovered and prospering in its new incarnation as an Osaka Securities Exchange-listed company, is looking to achieve success in Asian markets beyond Japan and China. The company, now a subsidiary of booming Japanese portal operator Livedoor, has announced plans to double its percentage of income from exports to neighboring countries to 20% within the next couple of years. The latest venture for Turbolinux is into the relatively untapped Vietnamese market, where it has started to conduct market research under a contract with Japan's Ministry of Economy, Trade and Industry.

According to a report in the Nihon Kezai Shinbun newspaper, the Japanese government is considering providing official development assistance to Vietnam for the popularisation of open source software as a spin-off from a recently formed pact between Japan, China, and South Korea to promote greater use of Linux and other open source software. Turbolinux plans to open an office in Vietnam within one to two years, it said in a statement, to search for business opportunities there.

The company is also intensifying its efforts in the rapidly growing and potentially massive Indian market, where it has been selling its software for the past two years via an agent. Within the next few months it will open an Indian subsidiary "in a major city" with a market capitalization of 100 million yen ($836,000) and a 200 million yen ($1.67 million) war chest made available from the funds it raised from its September initial public offering of stock. In India, Turbolinux will have 25 local employees and several managers and developers from the head office.

In China, where it has a joint-venture with a Chinese government agency for development and sales in the local market, Turbolinux has done well in the Linux server market, where according to market researcher firm IDC it has a 62% share. This is more than double the 29.6% share held by Red Flag Software -- a spin-off from the prestigious Chinese Academy of Sciences, which was also responsible for birthing computer giant Lenovo, which recently bought IBM's PC business. Turbolinux also holds a 25% share of the Chinese desktop Linux OS market.

Linux accounts for only about 10% of the Chinese market as yet, with Windows and Unix continuing to dominate. Linux-related sales grew by 44.8% to 96.44 million yuan ($11.6 million) in 2004, according to Chinese market survey company CCID Consulting. Linux used in server applications accounted for 85% of total sales. For 2005, CCID forecasts that overall Linux-related sales will grow at a similar rate to reach 143 million yuan ($17.7 million).

However, more and more Chinese companies and government entities are making use of Linux server software, and the tripartite pact with Japan and South Korea may accelerate Linux take-up. As the market grows, Turbolinux is well-placed to hold onto the lead it has had for the past four years, thanks to product development, despite the growing presence of foreign vendors such as Red Hat and Novell. Turbolinux's key advantage over Western suppliers is its software's ability to handle Chinese characters, which in computer terms are similar to Japanese kanji characters.

In Japan, Turbolinux is engaged in a tough battle for a slice of the small but growing Linux market -- estimated at 11% of the total server market by IDC -- with Red Hat KK, Oracle subsidiary Miracle Linux, and more recently Novell with its SUSE software.

For the year ending December 2004, the company reported 664 million yen ($5.5 million) in sales, 70% of which came from software and 30% from technical support and other services. This year it is confidently predicting sales up 75% to 1.16 billion yen ($9.7 million), with only the second consecutive year of profit in its history, forecast at 170 million yen ($1.4 million).

Turbolinux President Koichi Yano predicts that the company will grow within Japan, which now accounts for 90% of its sales, at a faster rate than the predicted 45% annual growth of the domestic Linux market.

First established in 1995 to sell US-made software in Japan, Turbolinux shifted focus to Linux in 1997 and transferred its head office to the US in 2000, but filed for bankruptcy protection in 2002. The Japanese subsidiary was acquired by a local software developer and sold to Livedoor last year.

Since then there has been no looking back. The company's September 15 listing on the Osaka Securities Exchange's Hercules market saw Turbolinux raising 920 million yen ($7.7 million)and Livedoor getting a healthy ROI of 795 million yen (6.6 million) from the sale of some of its shares.

Turbolinux is competing in server markets by targeting lower-end personal computer servers which require a low-cost operating system. With its OS priced at less than 40,000 yen ($336), the lowest among commercial Linux OSs sold in Japan, it feels its prospects are good. "In PC servers, we can expect large sales," Yano said.

On the desktop front Turbolinux just launched an OS which supports Microsoft Office programs, with which it hopes to dent Windows' nearly 100% grip on the Japanese PC OS market. The software will come bundled with Fuji PCs.

Key to the product is a component developed by a Filipino firm, SpecOps Labs, which makes it possible to run Office on Linux. A retail version of Turbolinux Personal, to be sold by distributor Sourcenext, will cost 1,980 yen ($16.60), about 15% of the price of a Windows OS. Sourcenext is aiming at first-year sales of around 100,000 copies and is aiming to introduce 50 Linux-compatible software products.

Michael Newlands is a freelance journalist who has been reporting on ICT in the Asia-Pacific region since 1982.

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