Survivor 3 (or Linux companies survive the 3rd quarter)

Another fiscal quarter over, and some of us are still here. Cheer
up. As of September 30, the average Linux stock price may look like the
Afghan army after a visit from the U.S. Air Force. However, if you
hitched your wagon to one of the surviving Linux companies out there, here
are two things that might comfort you:First, you’ve got plenty of company. The same analysts that blew up
the Internet and Linux bubbles and then popped them, are doing the same
thing to the rest of the economy. I subscribe to First
Call, the bible of the investment community. It’s the place
where buy- and sell-side analysts from the likes of Credit Suisse First
Boston and ABN Amro tell the world what they think of a given company and
its prospects. These stock promoters haven’t liked most Open Source
companies for a while now, but right now these guys don’t like anybody.
Everything from pharmaceuticals to oil companies are getting downgraded. Telecom
and tech stocks generally are still getting hammered.

Some have got bashed more badly than others.

Take Compaq. This week analyst Robert Chira from ABN Amro
essentially wrote off the company, suggesting it was on a downward spiral with
quarter-to-quarter PC revenues falling 11%. Chira suggested that the fall-off
should stabilize eventually but “we are not modeling [for] much” growth in
the near future. He reiterated the general view of the street, that the
merger with HP was a “raw deal” and a “major ball and chain around [Compaq’s] ankle” creating a combo that was ” poorly positioned,” with “no clear/credible marketing message or “road map.” Ouch.

Dell Computer didn’t get slapped as badly, but even here, you
could hear the the stampede of sell-side stock promoters heading for the
exits. In the last day or so, even the analyst for Robertson Stephens, the
most irrepressible Pollyanna of sell-side stock promoters, dropped its
gross earnings estimate for Dell by another 25% over the next year.

Even Microsoft is struggling. The company Windows XP is getting harsh reviews in the press. How negative? Here was one response, from the Miami Herald: “Sorry, I’m migrating to Linux and
leaving this garbage behind.” In addition, the company is learning the
hard way that the enterprise market is very different from desktop PCs.
Redmond is getting hammered by analysts for pushing XP when the
majority of its enterprise Win2000 customers haven’t finished rolling that
product out to its clients. To top things off, this is also the week that
Microsoft chose to promote its new portal solution for the Middle East.
If ever a product was launched at a less auspicious moment than
MSNArabia, I don’t know what it would be.

Give this kind pessimism, among the icons of the tech industry
imagine the type of news could you find about Open Source businesses?
After all, for the last year Linux has been about the most widely dissed
sector in high tech.

That’s the second thing that may comfort you. The news
coming out of the Open Source companies isn’t all that bad. For
example, Red Hat’s stock price has actually gone up over the last 30 days —
by about 50%. There’s a reason for that. The company continues to make
intelligent strategic decisions. Admittedly it has suffered
a fall-off in revenues, like a lot of firms, but it avoided
bleeding lots of red ink. It has gone after obvious markets, such as the
cash register/point of sale equipment market and the home entertainment
marketplace, and won business, and it has become the safe bet for companies
looking to migrate their Unix environments to a less expensive alternative.
It looks like a real business.

SuSE looks like it could become one, too. In the last couple of
days I’ve had three different conversations with the directors of tech
support at a major U.S. bank, a leading newswire service and a top management
consulting service, and all of these gentlemen volunteered that they had
converted their home machines to SuSE Linux after spending the last couple of
weeks working round the clock to stave off problems associated with Nimda
and an assortment of other Microsoft-related viruses. There is an
emerging market here, I can taste it.

Perhaps that’s why SuSE Linux was able to go out into one of
the worst economic situations imaginable and raise 15 million Euros
(U.S. $13.9 million). More interesting was the fact that they raised
significant chunks of that cash from “professional” investors, not just Linux
enthusiasts. Money came from Accenture, Apax Funds, SAP and Deutsche Bank, among
others. It isn’t a lot of money, but they raised the cash they intended to
raise, and without too much trouble. Go figure.

The news for SuSE employees wasn’t necessarily good. The firm is
dumping about a quarter of its workforce. Nevertheless, it does appear that
SuSE will manage to make into 2002. That’s more than Compaq can say.

TurboLinux is another apparent survivor, at least for the
moment. The company doesn’t talk much about its financial situation, but
after all the disasters it suffered earlier in the year, it appears to have
shaken out its management issues and identified a plausible business .
TurboLinux has gone after the enterprise and “Internet infrastructure”
markets, particularly those companies and institutions with a bias towards
unique, big-box server environments. It continues to make gains in Europe and
the Far East, which is where the core of the commercial market resides,
at least in my view. New CEO Ly-Huong Pham has a background in
non-standard big-box communication applications such as video-conferencing. I think
that’s a great background given the revived interest in conferencing
systems, the role TurboLinux may play in the Beijing Olympics and the fact
that Linux makes more sense in telecommunications than almost anywhere
else. Extreme Linux guru Peter Beckman has been made TurboLinux’s v.p.
of engineering, and I think that’s good news as well.

That’s not to say that Turbo has has fully got its act together.
If you go to the company’s employment contacts page you get asked for your serial number. I
presume they’ve made a technical error and have their tech support and
employment pages mixed up. Or they’re onto something I don’t know about. Neither
thought is comforting. But they seem to be hanging in there.

Linux continues to build a solid, if not spectacular, user base. A
small Florida city here, a retail operation there, several overseas
governments, an engineering and design shop or two. It’s hardly an Open Source
revolution, but in the current economic climate mere survival should be a cause
for celebration.