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TurboLinux strengthens ties with new funding

Marking the latest example of the demand for Linux, more than 20 companies have invested $57 million in TurboLinux.

More than 20 companies have invested $57 million in TurboLinux, a Linux seller that is strong in Japan and is expanding into many other regions.

As first reported by CNET News.com, the funding comes from numerous hardware and software companies, including several in Asia. Dell, the largest investor in this round, is working with TurboLinux to penetrate the Chinese market, TurboLinux chief executive Cliff Miller said in conference call today.

Though Miller boasted that the amount is nearly twice the largest previous investment in a Linux company, he also said the primary reason for the investment round was to solidify the company's relationships with its business partners rather than to actually raise funds.

"For us it's more important to build relationships," Miller said. "Through this investment, we're able to firm up our existing relationships and open a few more doors in ways that going public wouldn't allow us to."

Linux is an operating system sold by TurboLinux, Red Hat, and several other companies, but it's also available for free or very low cost. Linux, used most often in servers, competes with Microsoft Windows and Unix, from which it is derived.

Linux companies such as Red Hat and VA Linux Systems have capitalized on investor demand for Linux by raising tens of millions of dollars in their initial public offerings.

New TurboLinux investors include Applix, a seller of office software that works in Linux; Citrix Systems, which sells software useful in connecting Windows and Unix or Linux machines; Inprise, a company that sells programming tools; and NTT, the Japanese telecommunications giant.

Several other Japanese companies are involved in the investment round, including computer manufacturers NEC, Toshiba, and Fujitsu; CSK, a services company and venture firm; CTC, a company that configures computers for specific tasks; and Legend, which sells computers in China.

Other investors include Seagate, Compaq, Novell, the Santa Cruz Operation, BEA Systems, and Compaq.

Earlier investors in TurboLinux, including Intel, August Capital, and Broadview International, also participated in the round of financing, the company said.

Such corporate investments raise money for a company at the expense of losing control over a relatively large fraction of shares. In contrast, holding an initial public offering often raises money by selling fewer shares at a higher price.

Miller said Securities and Exchange Commission regulations forbade him from commenting on TurboLinux' plans to go public. However, financial and industry analysts expect such a move is likely.

Historically, there has been a delay between corporate rounds of investment and an IPO. Linux seller Caldera Systems broke that pattern last week by filing to go public on the same day it announced $30 million in corporate investments.

TurboLinux will use its new funding for increasing research and development, building up its corporate infastructure, and pushing into North America, Europe, and China, Miller said.

The TurboLinux stronghold is in Japan, where the company markets products for desktop workstations and servers. In the United States, where TurboLinux acknowledges the leadership of Red Hat, TurboLinux concentrates chiefly on servers.

"Here in North America, we agree we're not the market leader, so focus is more important," Miller said.

TurboLinux also is aggressively pushing into China. It has 12 training centers in the country, Miller said, as well as a Chinese version of TurboLinux. TurboLinux also employs the developer who wrote the software that allows conversion of typed characters into Chinese character codes, he added.

Dell, which includes an unistalled copy of TurboLinux with the servers and workstations sold in Japan, also is interested in China. "We are working very closely with them to provide the Chinese market with Linux computers, particularly TurboLinux computers," Miller said.

He also hinted that the future may hold stronger ties with Dell, which currently installs only Red Hat's version of Linux for the North American market. "We are looking forward to working with Dell in North America and other parts of the world," Miller said.

TurboLinux is working with Compaq on TurboLinux for servers based on Compaq's Alpha chip as well as on Intel chips, Miller said.

There's no shortage of people who want to invest in Linux companies.

Linuxcare received $32.5 million in investments, but turned away offers that totaled nearly ten times that amount, according to the company. Part of the frenzy was ignited with the successful IPO of Red Hat, a Linux seller which has seen its stock fly through the roof since their August IPO. Since then, other Linux-centric companies have held successful IPOs and seen their market valuation instantly rise into the billion-plus range.

The TurboLinux deal is the second Linux investment for Dell, having invested in Red Hat in April.

SCO, a Unix seller that signed a deal to support TurboLinux products, has announced plans to invest in several Linux companies. It's already invested in the Linux Mall and in Caldera Systems.

Intel announced an investment in TurboLinux in October. Compaq, SAP, Novell and Oracle also invested in Red Hat.