Investors have been infected with Penguin mania.
Not Mario Lemieux's team, mind you, but rather the other one represented by a Penguin mascot, the one affiliated with a certain open source operating system started by a Finnish grad student; stock prices have been rising lately for just about anything connected with applications for Linux. But between reading the message boards and feeding the hype-driven machine that inevitably takes over when the light volumes of summer rule the day it might help to actually look at the trio of companies riding today's wave. But if you want to remain optimistic about them, you have to hope the cliche is true: "Past results are no guarantee of future performance."
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You have to ignore the past to be optimistic about today's trio of Linux-boosted stocks, because the histories of Corel Corp. (Nasdaq: COSFF), Unify Corp. (Nasdaq: UNFY) and Applix Inc. (Nasdaq: APLX) are filled with litanies of disappointment. That's why they're pushing Linux -- to escape the past.
Consider Corel, best known for having its face handed to it in pieces after foolishly challenging Microsoft for control of desktop office productivity software. Phillipe Kahn tried to fight the Establishment, which always makes for a heroic story. And in fact, Corel's current office suite is a good Windows product; I happily used WordPerfect for years.
Still, Corel couldn't overcome Microsoft's size and leverage. Ok, everyone's allowed a mistake, but that wasn't Corel's last. You may recall the company's attempts a few years ago to lead the way with a Java version of its flagship suite; I actually downloaded a beta version of the damn thing and found it unusable, as did Corel, which killed the project after a flurry of hype.
Fine, the Java suite didn't work out, but that's alright, it was a cutting edge attempt. But why persist with a technology that you haven't been successful with? Corel wouldn't give up the Java dream, and actually tried to go into the hardware business with its Netwinder thin clients. It failed to take hold, and the unit was sold off at the beginning of this year.
Applix currently pushes Java applications. It started out 16 years ago as vendor of Unix-based front office software. The company earned 6 cents a share in the June quarter, compared to 2 cents per share a year earlier.
Or take a look at Unify. The company started in 1980 developing Unix databases, shifted to managing them in the mid-80s and stayed on that until falling sales convinced Unify to try another line of business. Unify tried application development software, which sounded like a good idea until the concurrent rise of object-oriented programming (as opposed to Unify's more traditional approach) and the Internet (rather than the client-server business that Unify focused on) forced the company into yet another transition. Unify lost money for a couple of years in the early 90s, and as recently as last year was virtually at a penny stock level.
Each of these companies sees Linux as an escape from past. Of the three, Unify seems to have the most compelling prospects. The company has established a foothold in the market for software used to build Web applications. It's not tied to any single OS -- Unify's tools work on Windows NT, Red Hat's Linux and several Unix systems -- and has several strategic partners, like IBM. CEO Reza Mikailli has turned finances around, with Unify earning 49 cents a share in fiscal 1999, after a loss of 29 cents per share the year before.
"I don't think anyone does a lot of business with Linux or Linux-based applications, but at least Unify is a company with good fundamentals and good growth prospects," says Orin Hirschmann, managing director with Adam Smith & Co., whose research focuses on turnaround prospects.
Unify's past experience has helped the company develop software that connects older systems with the Web-based ones. Given the growth we'll see in Web commerce, Unify definitely has something to look forward to. "There's a lot of room for people to meet customer needs in the Web applications market," says Needham & Co. analyst Brent Williams, who has a "buy" rating on Unify. "The company has fixed the challenges it was grappling with in the past."
Whether the Linux market will turn out to be a profitable one remains an open question for anyone making applications for Linus Torvalds' brainchild. But one thing you can count on: today's Linux market mania won't last.
On a light volume day, the lightest of buzz can move stocks. But consider that Red Hat shares are falling today, probably because they're expensive at 76 and change, so Linux cheerleaders are looking for any place to stick their cash.
Linux remains an interesting market, but one with a long way to go before it produces profits for anyone, OS vendors, application providers or otherwise. Once the buzz fades and the message board propaganda is forgotten, the best way to evaluate a company is look at its fundamentals, its operations, its management and its history. Unfortunately, today's Linux loves carry a lot of dead weight from the past.
In the spring, the maker of software for accessing corporate systems hired Bear Stearns to look at strategic alternatives for Rumba and Cyberprise. Now CEO Kevin Vitale says its better to keep them. Yeah, and I'm sure Wall just had to fend off a ton of buyers for those businesses. Not.
At least it's over. "The process has been a distraction for everyone, and our results for the last two quarters have shown it," Vitale admitted, referring to Wall's consecutive quarterly disappointments.
Broad indices remained negative in the afternoon. The Nasdaq Composite Index was down 41.17 to 2717.73, the S&P 500 down 16.72 to 1331.55, and the Dow Jones Industrial Average down 110.50 to 10979.67. 22GO>