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Linuxcare is an oasis of calm amid the Linux frenzy

Investors clamored for a piece of Red Hat's IPO, but Linuxcare is nurturing its business before going to the public trough.

Given the populist support for the Linux operating system, Linuxcare would seem like a top candidate to sell stock to the public. Not so fast, says the company.

Bringing a cautious note to a market buzzing with the possibilities of the upstart OS, Linuxcare chief executive Fernand Sarrat said his company is focusing for now on closing another round of financing from corporate sponsors.

"We don't want to go out there as a concept kind of company," Sarrat said in an interview with CNET News.com. Instead, Sarrat is busy signing Linux-support contracts so the company has a solid revenue stream before launching an IPO. Linuxcare, which provides technical support and training for Linux, is raising enough in corporate investments "to have enough flexibility to pick our IPO time whenever we want next year," he said.

What's going on here--sober, rational thought in the midst the hype that surrounds Linux?

Perhaps the best example of the enthusiasm for Linux is Red Hat, which sells a popular Linux version along with bundled software and technical support. Red Hat has charged out of the starting gate, raising $84 million in an initial public offering less than a month ago. The share price has increased more than fivefold from 14 to its current price of more than 79.

"I think Linuxcare is being very pragmatic," said Giga Information Group analyst Stacey Quandt. Many stock traders are "following the hype and not as aware of what Linux and open source is about. They hear about Red Hat going public, and they think there is an opportunity for them as well."

Linux is a Unix-like operating system that's available for free or for very little cost. It's won a place in the product lines of IBM, Oracle, Hewlett-Packard, SAP, and other computing heavyweights, and many say it's an increasingly viable competitor to Microsoft Windows as well as Unix.

Other Linux IPO candidates include VA Linux Systems, a maker of Linux computers, and Caldera Systems, another company that sells Linux. In addition, Linux-related Internet real estate is becoming valuable.

Sun signs up Linuxcare
One big new deal for Linuxcare is providing support for the Linux version of StarOffice, the suite of programs Sun recently acquired.

Not all the details of the agreement have been worked out, but Linuxcare plans eventually to provide support to users of the StarOffice software, Sarrat said. The StarOffice deal is a new direction for Linuxcare, which still focuses on the operating system instead of programs that run on top of it.

"We're entering in to the desktop service area a little faster than we had intended, but we feel the services we have been providing at the server level are well enough oiled right now that it is prudent," Sarrat said. "The relationship with Sun is such that we just couldn't pass up the opportunity," indicating that Linuxcare was also working with Sun to write Linux drivers for Sun peripheral hardware.

The Sun deal comes on the heels of others with Dell Computer for its Linux machines, with IBM for its PowerPC-based systems, and with McMillan Software, which publishes the Mandrake version of Linux.

Sarrat, appointed in May, has several other deals in the works, he said. For one thing, the company has other contracts in the pipeline with hardware makers of the same prominence as Dell and Sun, agreements that have passed through the "is it a good idea" phase and into the "how should we structure the deal" phase.

Linuxcare also has potential deals with a major German software company, with "one of the top five or so consulting and integration firms," and with an information technology company working with a bank, he said.

"1999 has been a year of building infrastructure--hiring the talent, putting the infrastructure in place. The partnerships and seeding for revenue next year is coming along pretty well [and] faster than I expected," Sarrat said.

Linuxcare currently derives more revenue from customer support services than Red Hat, Sarrat said.

"I think we're ahead of schedule, except I would like to see us being further ahead on the software side," he said. "The hardware and services people offer much greater volume right away than some of the software guys." Linuxcare has about 80 employees.

Left under pressure
Before Sarrat joined Linuxcare, he was chief executive of a computer security firm called Cylink. He stepped down from that position last November amidst controversy surrounding that company's financial reports.

Sarrat said some transactions in the company's financial statements "made me uneasy, even though I'm not an accountant." It wasn't clear whether the entries "were appropriate for revenue recognition or not," he said.

The day after Sarrat's resignation, Cylink announced that it was reviewing "its revenue recognition practices." The company added that a preliminary review indicated revenue may have been overstated by more than $11 million for the first two quarters of 1998.

"Let's just say that the board and I did not see eye to eye with how this event had been surfaced and the fact that the events had happened," Sarrat said.

Sarrat emphasized that not everyone on the Cylink board was at odds. In fact, a member of that company's board soon will be joining Linuxcare's board, he said.

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