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As chip sales plummet, which software vendors will survive?

A fight to win those remaining software deals is on the cards, with the winners being those that can deliver more for less hassle and less money.

The Semiconductor Industry Association (SIA) is now projecting that global chip sales will drop 21 percent in 2009, reflecting a souring view since its last projection in November 2008, according to The Wall Street Journal. Fewer chips means fewer new servers and fewer personal computers sold, which is consistent with IDC's report of a 25-percent decline in server sales in the first quarter of 2009.

Against the backdrop of these hardware declines, which software vendors are best-positioned to withstand CIOs' spending frigidity?

Recent earnings reports from Novell and from Red Hat suggest that Linux and open-source vendors may clean up even as spending gets chopped.

Indeed, Red Hat CEO Jim Whitehurst has suggested that the darkened economy spells "light" for Red Hat:

Our value proposition is even more compelling in a challenging economic environment, and we believe that's a key driver to our solid financial results and market share gains.

IT departments woke up on January 1, 2009, almost certainly looking at shrinking IT budgets but a continued need to make themselves useful to their enterprises. Enter open source, with its nonexistent (at least initially) license fees and try-before-you-buy mentality, which is precisely the right message for a down economy.

I work for Alfresco, an open-source content management and collaboration company, and advise over 10 open-source start-ups, including MindTouch, Volantis, SugarCRM, JasperSoft, Openbravo, and others. Across the board, the sour economy has been a net positive for the open-source companies with which I'm familiar, with pipelines growing by a factor of three in many cases, albeit with longer than usual sales cycles.

The question for companies that peddle proprietary products is whether they can replicate the ease of adoption that open source affords. Oracle has gone a long way toward this by making its products available to developers to download and try for free, but some companies still have yet to find a clue, as Cloudera CEO Mike Olson discovered recently with GitHub.

The market has tightened considerably, and is likely to get worse. The software vendors that can deliver superior value at a lower cost and less hassle will win in this environment. This should bode well for open source, but open-source companies still have their work cut out for them to come out ahead.

Follow me on Twitter @mjasay.