Linux dons pinstripes

As some Internet investors get cold feet, another IPO market could step in to take its place: Linux, as VA Linux and others consider going public.

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4 min read
As some Internet investors get cold feet, another IPO market could step in to take its place: Linux.

Two prime candidates are VA Linux Systems, a manufacturer of Linux computers and a company with Dell-sized ambitions, and Red Hat, currently the most popular seller of the Unix-like operating system.

VA is considering going public, the company's chief executive said yesterday, and sources have said Red Hat plans an initial public offering, or IPO, in the fall.

Linux has come a long was since its beginnings as a hobby for founder Linus Torvalds and many of his cohorts. The operating system has won a place in the product lineup of companies such as IBM, SGI, Compaq, Hewlett-Packard, and Dell, and mighty Microsoft is actively examining the operating system as a competitor.

Red Hat declined to comment on the possibility of an IPO. "We hear those rumors so often that we can't even comment on them," said spokeswoman Melissa London.

But VA was more open. The company is "looking at" the possibility of an IPO, though "there's definitely nothing on the calendar," said VA Linux Systems CEO Larry Augustin in an interview yesterday.

VA hired a new chief financial officer Friday, a step many consider to be an indicator of plans to proceed with an initial public offering, or IPO. The new CFO is Todd Schull, who was vice president of finance at electronics manufacturer Solectron, Augustin said.

Although Augustin said Schull was hired more for operational reasons than for taking the company public, he also pointed out that Schull "did a lot of the work" in helping Solectron to go public.

Selling stock publicly during an IPO gives individuals a chance to invest in a company and--if all goes as planned--raises money for the company to expand its operations. Companies with their roots in the Linux operating system so far are privately owned, but they've attracted investments from big-name computing companies, and some Linux advocates have said they believe Linux as potentially as important as the Internet.

Becoming publicly traded could bolster VA's ambitions to reach Dell-like competitiveness in computer sales. In March, VA said it planned a manufacturing capacity of tens of thousands of computers per month, a move that led it to hire contract manufacturer Flextronics to produce most of its computers.

Schull, the new CFO, also reinforces the company's focus on ramping up production. "Todd's background is in large-scale manufacturing," Augustin said of VA's new CFO. Before becoming vice president of finance at Solectron, Schull was senior assistant to the CEO and director of operations.

Both VA and Red Hat are prominent enough in the Linux arena to have attracted the investment of Intel. Red Hat, which International Data Corporation has said was the top-ranked seller of Linux in 1998, also lists as its investors Oracle, SAP, IBM, Dell, and others.

Will money hurt the effort?
One factor to consider as VA ponders going public is compensating the myriad programmers who have contributed to Linux over the years. With Linux, the original programming instructions are freely available to anyone who wants to see or modify them. This model, called open source software, stands in contrast to the proprietary techniques that underlie most operating systems available today.

If a company such as VA or Red Hat went public and made a lot of money off Linux, "What does that mean for all those people who've done a lot of work and don't necessarily" make money out of it? Will they still want to contribute to Linux? "That's one of the issues we're struggling with," Augustin said.

Linux expertise becoming a more and more marketable skill as big-name companies like SGI are looking for Linux-savvy employees, and even Microsoft is hiring.

Red Hat's approach has been to hire several important Linux developers, including Alan Cox and Dave Miller. Red Hat CEO Robert Young has said that the company's goal was to make sure Linux development continues while enabling programmers to pursue the subjects they want.

VA, too, has a staff of programmers. They've been focusing on tasks such as getting Linux to support eight-processor systems using Intel's Profusion technology, but an increasing effort is aimed at improving the graphical user interface of Linux, Augustin said.

"I think we can take Linux to be a generation ahead of Windows in user interface design," Augustin said. He said it's too soon to tell exactly how the effort will tie in with other user interface efforts such as Gnome or KDE.

Leading the effort is Gregg Zehr, who was a vice president of engineering at Apple and whose motto emphasizes simplicity: "One button, no instructions."

VA also hired Geoff "Mandrake" Harrison, a developer of the Enlightenment graphical user interface system.

Red Hat also has been active in user interface development for Linux, funding and supporting the Gnome effort.

Many analysts and industry representatives point to the relative immaturity of the Linux user interface as an impediment to its mainstream adoption.

Cygnus: another candidate
Another Linux-related IPO candidate is Cygnus Solutions, which develops critical software development tools called compilers that translate programs people write into language chips can understand. Cygnus' compiler technology is at the core of the Gnu tools that programmers use to develop Linux, and Cygnus is involved in the effort to make sure people can write software for Intel's upcoming 64-bit chips, due in the second half of 2000.

The company is in search of a new name and stock ticker symbol, and Cygnus founder Michael Tiemann yesterday didn't deny the possibility of taking the company public. Cygnus so far has received about 5,000 suggestions for a new name, many of them incorporating either the "Gnu" letters or the "OSS" initials for open source software, the nonproprietary information sharing model used by Linux and Cygnus.

Cygnus also is helping Corel and Oracle with their efforts to bring their software to Linux.

News.com's Dawn Kawamoto contributed to this report.