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Embedded Linux firm LynuxWorks files for IPO

The company is the second embedded Linux company to file initial public offering plans, hoping to raise about $70 million for its effort to spread the operating system into non-PC devices.

LynuxWorks has become the second embedded Linux company to file initial public offering plans, hoping to raise about $70 million for its effort to spread the operating system into non-PC computing devices.

LynuxWorks changed its name from Lynx Real-Time Systems to emphasize its embrace of Linux, but the company continues to sell its proprietary embedded operating system, Lynx, and has yet to make any significant money off Linux. Embedded operating systems are used to run all manner of devices, from computer networking equipment and airplane radar systems to handheld computers and cell phones.

The company has posted gradually increasing losses, from $1.8 million in fiscal 1998 to $23.3 million in fiscal 2000, which ended April 30. Revenue also has steadily increased, from $11.1 million to $20.8 million in the same period. In the three months ended July 31, the company had a pro forma net loss of $8.9 million on revenue of $6.3 million.

In May, competitor Lineo became the first embedded Linux company to file IPO plans, but it has yet to go public. Meanwhile, Red Hat, the best-known Linux company and the first to go public, has an embedded software product of its own.

Linux was a hot IPO ticket last year, raising tens of millions of dollars for the handful of companies that got out early. With the renewed concern about profitability on Wall Street, however, some Linux IPOs have been delayed while publicly traded companies' stock prices have taken a beating.

Red Hat was trading Thursday at $12.31, well below its 52-week high of $151.31, while hardware maker VA Linux Systems slipped to $27.56, well below its IPO price of $30. Caldera Systems was trading at $3.36, about a tenth of its all-time high of $33.

Eventually, LynuxWorks hopes to make Lynx interchangeable with its version of Linux, called BlueCat. The plan--common among embedded software companies--is to make money by selling programming tools to help companies use embedded operating systems on a variety of CPUs.

But the company said the shift to BlueCat has just begun. "We completed our first sale of BlueCat Linux in March 2000, and we have not yet generated any meaningful revenues from software or services related to BlueCat Linux," the company said in its IPO filing with the Securities and Exchange Commission.

"Because BlueCat Linux is an open-source product, we market it on a royalty-free basis and typically receive only nominal revenues for each sale. Thus, this portion of our business plan depends upon generating substantial revenues from the sale of software development tools, software applications and engineering, consulting, and training services related to BlueCat Linux," the company said.

Profitability still is remote. "We expect to continue to incur net losses for the foreseeable future as we incur significant expenses in connection with product development, sales and marketing, and hiring and training employees, as well as expenses relating to our acquisition of ISDCorp."

CNET's Linux
Center LynuxWorks received a $20 million investment from Motorola, TurboLinux and others in April.

Other embedded Linux companies include TimeSys, MontaVista Software, Coventive Technologies, Coollogic, Neoware Systems and Metro Link.

The lead underwriter for the LynuxWorks IPO is Deutsche Banc Alex Brown. Others are Prudential Volpe Technology, Dain Rauscher Wessels and ABN AMRO Rothschild. The company plans to trade on the Nasdaq under the ticker symbol "LNWX."