VA Linux plans Japanese venture

2 min read

VA Linux Systems, Inc. (Nasdaq: LNUX)'s launch of a Japanese subsidiary didn't do much for its stock; shares in the provider of software for the alternative operating system were down after Microsoft (Nasdaq: MSFT) won a legal victory Tuesday.

Shares were down 0.19 to 48.25 Tuesday afternoon. Other Linux-related companies, such as Red Hat (Nasdaq: RHAT), down 0.81 to 18.88, also slumped on the news. VA Linux stock got a boost recently when its price target was raised.

In a conference call Tuesday afternoon, Robert Russo, the company's senior vice president, touted the significance of the deal, which includes deals with major Japanese companies, giving it an entree into what is usually a tough market for US companies.

The subsidiary, VA Linux Systems Japan, K.K., is "a consortium to jumpstart the adoption of open source software in Japan," Russo said. VA Linux Systems and Sumitomo are investing together to found the subsidiary, and NTT Communicationware, NEC and Toshiba Engineering have indicated their intent to invest. Like VA Linux's U.S. and European operations, VA Linux Japan will will focus initially on the infrastructure market. Officials said they also expect quick entry into the enterprise market.

In addition to financial investments, Sumitomo, NTT Communicationware, NEC and Toshiba Engineering are in discussions about providing VA Linux servers to their partners and customers. NTT Communicationware, NEC and Toshiba Engineering also plan to contribute development resources -- including their engineers -- to the venture. Ross declined to specify on the call how big a financial commitment the companies would make. "Japanese companies don't take these kind of investments lightly. Its an issue of loyalty, commitment, follow-through," he said.

As for the competition, Russo said other players like IBM (NYSE: IBM) are trying to move into the Japanese market. "We've done a good job of pulling together the right players... we see the Linux market in Japan as relatively fragmented...this consortium can be the dominant player." The search for the new subsidiary's executives is underway, and VA Linux Systems Japan, K.K should be operational by mid-October, the companies said.