Linuxcare Files for IPO Even as Similar Stocks Hit Slump
Linuxcare Inc., expected to be the next monster company based on the Linux operating system, filed for its initial public stock offering Thursday, with hopes of raising $92 million on the heels of the $32.5 million it raised in its second round of private financing last month.
The move came despite skittishness among investors toward companies based on the “open source” software program, which is available free and supported by thousands of volunteer programmers. Those companies’ stocks have plummeted in recent weeks.
San Francisco-based Linuxcare provides technical support and training for computer makers and large corporate users of Linux. It appears poised to exploit investor interest in companies based on the insurgent operating system, which competes with Microsoft’s Windows NT and Windows 2000 for server computers that manage computer networks and for powerful workstation computers.
Linuxcare’s filing with the Securities and Exchange Commission did not specify the number of shares to be sold or the estimated share price. Funds raised will be used to build infrastructure, repay debts and possibly finance acquisitions.
Durham, N.C.-based Red Hat Inc., which went public last summer, distributes and services its own version of Linux and is valued at nearly $17 billion. VA Linux Systems Inc. of Sunnyvale, Calif., set a record when its shares rose a jaw-dropping 698% on their first day of public trading last month. That company sells and services computers pre-installed with Linux.
The major Linux companies are all bleeding red ink. But many industry observers think that the free software already is threatening Windows NT and 2000 and eventually could challenge Windows 98. If so, the demand for the services these companies offer could skyrocket.
However, estimates about Linux’s market penetration vary widely. Some analysts say the software is used on one-fourth or more of all Internet servers.
Chris Le Tocq, an analyst with GartnerGroup in San Jose, scoffs at such figures. He says that although many Web masters have downloaded the software, few actually use it--closer to 2.2% of the market in 1999, a figure Le Tocq predicts will rise to only 2.8% this year.
Certainly the short-term financial prospects of Linux companies might give investors pause. Linuxcare lost more than $10 million in its first nine months of operation through September on revenue of slightly more than $500,000.
Linux stocks that enjoyed stellar IPOs, including Cobalt Networks Inc., Andover.Net Inc. and VA Linux, have all seen their stocks tank in recent weeks. Those companies’ shares are trading at one-third to one-half their highs. Red Hat has resisted the free fall, though even the Linux leader is down some 25% since early December.
Given the novelty of the Linux market, such volatility should be expected, said Michael Kwatinetz of Credit Suisse First Boston, an underwriter for both VA Linux and Linuxcare.
The potential for growth in Linux-based devices--computers as well as Internet-linked appliances such as hand-held Web pads--has attracted the attention of leading companies.
Linuxcare’s latest round of capital came from Dell Computer Corp., Oracle Corp., Sun Microsystems Inc. and Motorola Inc., as well as leading venture capitalists. A strong relationship with industry heavyweights should open doors for Linuxcare in the long run, said Stacey Quandt, an analyst with Giga Information Group in Santa Clara.
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Slowing Down
Linux-related stocks Red Hat, VA Linux Systems and Andover.Net each rocketed in their trading debuts, but the volatile shares are now well off their peaks. Weekly closes since initial offerings:
Source: Bloomberg News
