“Since we first informed you that large technology companies
were joining the Linux revolution, many changes have occurred.
However, the sector is hotter than ever. Remember back in January
when VA Linux (NASD: LNUX) and Red Hat (NASD: RHAT) were the
hottest stocks in the market? With the imminent breakup of
Microsoft, it seemed like this duo were the next companies to
ascend the throne as de facto rulers of the next generation of
operating systems. These days, Microsoft is indeed breaking up but
both Red Hat’s and VA Linux’s stock prices are shadows of their
former selves.“
“Why is this? Clearly each company is finding its own niches to
dominate with Red Hat announcing a client services division and VA
Linux continuing to build its Linux community into the largest on
the Internet. It should be natural for these corporate movements to
translate into higher stock prices.”
“The truth of the matter is that Red Hat, VA Linux (and other
Linux companies such as Caldera (NASD: CALD), Turbolinux (private),
Linuxcare (private), etc.) are first of all victims of the negative
market hype surrounding all Nasdaq-listed technology stocks,
especially Web-based companies. Secondly, investors have made a
“flight to quality”, shifting to brick-and-mortar businesses that
actually make profits and have more proven business models.
Traditional businesses that have successfully integrated an
Internet channel into their existing operations (or
“bricks-and-clicks” businesses) are becoming especially popular in
the markets. Thirdly, established traditional software and hardware
producers have moved into the Linux sector in order to compete with
the startups. In the spirit of traditional businesses opening
Internet channels, traditional software and hardware companies have
realized that in order to meet the needs of customers, they have
moved applications and hardware to a Linux platform. As an example,
IBM (NYSE: IBM) announced that it was adding Linux as an area of
expertise within its professional services group and the company
would be competing with Red Hat’s newly formed professional
services group (partially funded by Intel (NASD: INTC), Oracle
(NASD: ORCL), and Netscape (NYSE: AOL)). This can be seen as a sign
that IBM views professional services as a successful business
within the Linux sector.”