April 28, 2001

Stock report: Markets up, but Open Source companies lag behind

Author: JT Smith

- By Dan Berkes -
The markets took an upswing this week, but the effects of the overall economic downturn continue to impact Open Source companies. This week, we say goodbye to Stormix Technologies, VA Linux revises its revenue forecasts, and Eazel opens a PayPal account. Plus: Is Caldera unintentionally killing off its reseller channels?
The Nasdaq closed up on Friday, gaining more than 40 points on Friday to stand at 2,075.68, down almost 16 points from Monday, but continuing a general upward trend that began on April 4, when it closed at 1638. The New York Stock Exchange headed in the same direction Friday, with the Dow index up 117 points to close at 10,810.05, wiping out its losses for the year so far. Despite the gloom-and-doom from most news and finance sources, the U.S. economy experienced better than expected growth in the first three months of this year. Some economic sources feared that the domestic economy would have experienced a recession by this point in time.

"What I think you're seeing right now is relief," said James Philburn, an independent market analyst. "This is reaction from business and from shareholders to the reality that we haven't slipped into a recession. It's driving the market up, but slowly." Philburn believes that market conditions will steadily improve, but at a much slower pace than in the late '90s. "It will never be like the old days, and I don't think anyone wants to see the old days again. That was an artificial market," he said, referring to the proliferation of high flying but now-worthless dot-com stocks.

IBM acquires, Caldera cans, VA Linux revises
-- IBM (NYSE:IBM) this week announced that it had purchased the database business of Informix, for $1 billion. Big Blue plans to use its Informix acquisition to strengthen its position in the distributed database decision. Whether or not this will translate into Open Source advantages for the company remains to be seen. Wall Street rewarded IBM's decision by driving its stock up to 116.20 on Friday, a gain from last Friday's close of 114.47.

-- In a filing with the SEC, Caldera (NASDAQ: CALD) announced plans to lay off up to 17 percent of its staff, eliminating 32 jobs from its 188-person workforce. The company says the layoffs are needed to "reduce operating costs." The company expects to take a one-time charge of $450,000 to pay severance packages and outplacement efforts. Caldera edged downward at Friday's bell, closing at 1.87 -- down from 2.07 on Monday.

-- VA Linux (the company that owns NewsForge) (NASDAQ: LNUX) on Thursday announced that its third fiscal quarter revenue will likely be between $18 and $20 million -- down from a less-specific "below $30 million" offered in early February. In a press release, company CEO Larry Augustin said that VA is "progressing towards our previously stated staffing and spending reduction goals. These steps and our strong cash position will allow us to weather the current cycle." Investors were not as confident, closing VA Linux at 2.81, down from a high of 3.47 at the start of Monday's trading.

Stormix sleeps, Eazel passes the hat
-- The rumors of Stormix Technologies' demise were not greatly exaggerated. Unable to fully recover from its January bankruptcy, the Vancouver-based Linux reseller disconnected its main and toll-free telephone numbers last week. Earlier this week, Stormix announced it had gone into "hibernation mode," citing the weakness of the financial markets for its inability to secure additional financing. The company's parting comment: "Long live the Open Source Movement, Linux and Debian."

-- When your company is teetering on the brink of disaster, every little bit helps. Eazel has started accepting PayPal donations to keep the company afloat. The idea was implemented by company co-founder Bart Decrem, after reading suggestions from the Slashdot user community. Philburn: "Here's a company you've got to feel for, having done everything right," in terms of listening to users and giving them what they want. "The PayPal announcement, I think, is just a gimmick. I doubt it would delay the inevitable shutdown."

Rumors and speculation
-- More on Caldera: Is the company killing off its SCO reseller channel? That's what the company's resellers are saying -- or at least what one of them has said to The Register's Andrew Orlowski. With OpenServer binaries running so well on Linux, fewer customers feel the need to buy expensive SCO licenses, and SCO's resellers feel more like kicking a penguin these days instead of embracing one. Unrelated but equally troubling news: Caldera may lose UnixWare's biggest customer, just as it's about to take over that company.

-- As the feds continue their inquiry into IPO sales practices, two of Credit Suisse First Boston's senior officers were placed on administrative leave last week. That move has raised Wall Street's concerns of the investment bank's sales activities. Companies that used CFSB include AvantGo, Evolve Software, VA Linux Systems, and Handspring.

-- LinuxWorld reminds us that "Linux, like the Internet, exists beyond the United States." With an in-depth report on the use of Linux in Latin America, we learn that 33 percent of all computers in that region are expected to be running Linux within next two to three years. Local Linux and Open Source companies are, of course, springing up to meet the present and future anticipated demand of their services. "Is there a profit to be made there? That really depends on what [those new companies] are going to offer," stated Philburn. "Here you have a market where many consumers have annual income that doesn't even come close to the price of a single bottom-of-the-line computer. Free software will help, but what they need is affordable hardware."

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