Next Linux IPO no sure thing

LinuxOne is expected to launch its initial public offering as early as next month. But the upstart company faces a host of issues that were absent in the highly successful IPOs of Linux companies Red Hat, VA Linux, Cobalt Networks and Andover.Net.

"They're facing a busy calendar with a small underwriter," said Richard Peterson, an IPO analyst with Thomson Financial Securities Data.

Currently, 38 deals are in the pipeline for January. That's up from 12 deals a year ago and nearing the mark for the most busy January since 1992, which saw 43 IPOs.

Because LinuxOne is one of the smaller offerings, it may face a tough time grabbing investors' attention, analysts note.

No firm date has been set for the offering, so underwriter Capital West Securities could delay the launch to separate LinuxOne from the crowd. Bob Rader, senior vice president at Capital West, would only confirm that the the IPO "is going to be late January at the earliest."

Also factoring into the IPO is the fact that Capital West has handled only three other IPOs--all of which are currently trading below their offering price. The investment firm took CD Warehouse, Horizon Pharmacies and Zymetx public in the past two years. Today, those companies are trading below $4 a share.

As previously reported, LinuxOne also has yet to generate any revenues.

The company is seeking to raise up to $24.75 million, based on the 3 million shares it plans to sell at an expected price of $8.25 a share.

Meanwhile, the other Linux players had tremendous run ups in their first day of trading:

• When Red Hat went public in August its shares jumped 272 percent on the first day.

• Shares in VA Linux, which recently went public, set a new record for the best first-day gain of any stock when they soared nearly 700 percent.

• Shares in Andover.Net, an operator of Linux-related Web sites, posted a gain of more than 250 percent when they debuted earlier this month.

• Cobalt Networks' shares jumped more than 480 percent on their debut.

Combined, these Linux companies have a total market value of more than $25 billion.

Some developers in the Linux community have criticized LinuxOne for rushing its shares to the market.

Compared to many other Linux companies, LinuxOne is a relative newcomer. It was founded it March and filed its initial IPO in September, the same month that its first product went to beta.

The company specializes in developing and distributing versions of the Linux operating system, a variant of the Unix operating system.

Linux is licensed under the open source model, which means the software's source code is freely available to the public. Companies such as LinuxOne or Red Hat, the first Linux-related company to go public, essentially can tweak the operating system and sell their own branded Linux-based products without paying royalties.

LinuxOne has concentrated on foreign-language versions of the OS. Like many other Linux companies, it intends to sell software and offer support and service deals.

Also like Red Hat and other Linux companies, LinuxOne has yet to post a profit. The company has lost $158,000 since its inception to October 31, according to documents filed with the SEC.

Some of the antagonism comes as a result of how the open source system works, said Michael Morrison, an attorney for the company. LinuxOne is taking advantage of the fact that companies that aren't part of the core development group can cheaply and easily adopt the OS. Although he states that LinuxOne "hasn't been around for a few years and hasn't paid its dues," it is acting within the open source guidelines.

"The guys who are going around saying it [Linux] is great and that everyone should use it are complaining about LinuxOne," he said.