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2HRS2GO: A Pin Head sees the light

You can learn so much reading stock message boards.

"Numbers mean nothing - It's about LINUX," screams a Yahoo! Finance post about Corel (Nasdaq: CORL). "What is wrong with you PIN HEADS. It is about growth, not profit. The smart money knows if the growth is their the profits will follow. Read, Learn. Do some market research not financial research."

How could I have been so stupid? What was I thinking, actually putting value on revenues, expenses, balance sheets and bottom line growth? I missed the tree for the forest.

Have an opinion on this?

Naturally, a company that's only been around for 14-plus years should still be in a pure "growth" mode, as opposed to a profit one. Of course, the fact that Corel's total fourth quarter revenue shrank sequentially and year-over-year doesn't mean the company isn't growing, because LINUX produced $3.2 million in revenue.

Microsoft (Nasdaq: MSFT) should pay heed, because even as Corel's stock price rose more than 11 percent this morning, shares of the Evil Empire dropped after a quarterly report that only beat analyst estimates by a penny if you subtract better-than-expected investment gains.

Smart money knows profiting through Corel's one-time, never-to-be-seen-again tax gain is infinitely preferable to Microsoft's strong portfolio management.

And surely "market research" indicates Linux will provide far more revenue than the Windows OS. If the combined November quarter revenues of Red Hat and Corel Linux merely triple each quarter, it will only take more than six quarters to equal the lower-than-expected $2.44 billion raked in by the Windows platform in Microsoft's second quarter.

LINUX will produce, because if the growth is there (their?), the profits will follow.

Just ask Value America (Nasdaq: VUSA), which saw September quarter losses rise 60 percent year-over-year in absolute terms while revenue increased 269 percent. Just ask Amazon.com (Nasdaq: AMZN), where profit remains elusive despite skyrocketing sales, because the company believes it has to maintain a high rate of investing to stay ahead. For that matter, just ask Microsoft (Nasdaq: MSFT), whose new CFO yesterday told people not to expect profits from its Web content operations even though revenues are on pace to break the $1 billion mark by the end of the company's fiscal year.

Speaking of chief financial officers, maybe Microsoft should have taken another page from the Corel playbook and not hired a new one as soon as the company discovered the old one was leaving. After all, John Connors stumbled in his debut as Microsoft's Head Bean Counter by issuing the same types of cautions Greg Maffei used to.

Never temper expectations when you can boast a la Corel:

  • "Overall, Corel has made significant progress in restoring its financial base while at the same time, maintaining the momentum of its flagship CorelDRAW and WordPerfect brands," said outgoing CFO Michael O'Reilly.

  • "It should now be clear to everyone that Corel is financially among the top Linux players," said Michael Cowpland, president and CEO.

It doesn't matter that the top LINUX players produce enough red ink to fill the Great Lakes, as long as you're floating on top. No one should worry that Corel's core office suite business saw a sales slowdown even as Microsoft's Office 2000 produced unexpectedly strong results.

PIN HEADS like me should take the hint provided by the market today. Ignore the numbers, forget financial research. New technology will overthrow Microsoft, make everyone rich, create a global hegemony of peace and love, and cure the common cold.

No doubt that explains why big names such as Sun Microsystems (Nasdaq: SUNW), Hewlett-Packard (NYSE: HWP) and IBM (NYSE: IBM) have LINUX projects. We'll overlook the fact that each also invests as much effort, if not more, into competing operating systems, such as Solaris for Sun and Windows for HP and IBM.

Just remember: LINUX rules, dude!

Other issues:

  • Informix
  • (Nasdaq: IFMX) Oracle has been the most visible beneficiary of the confluence of databases and the Internet, but Informix boosters have long touted their stock as a better buy than Larry Ellison's company. The market seems to agree today, judging by the 14.5 percent rise in IFMX stock coming off Informix's latest release of software for managing e-commerce sites and analyzing their data. I suppose there's room for more than one player in the market, but will Informix be the king? I'd be curious to see how it would overcome Oracle's large and loyal installed base.

  • Galileo Technology
  • (Nasdaq: GALT) How can anyone resist a company whose ticker symbol is reminscent of the protagonist in the Ultimate Capitalist bible, Atlas Shrugged? Ayn Rand references notwithstanding, analyst downgrades sent Galileo plunging today, but keep in mind the revenue slump is expected to be only temporary. Considering the growth expected from Galileo's communications market -- Cisco Systems (Nasdaq: CSCO) happens to be the company's largest customer -- the long-term view remains positive. 22GO>