Linux IPOs: Is Caldera next in line?

If Red Hat Inc.'s recent IPO announcement isn't proof enough for you that Linux is more than just the darling of anti-Microsoft Corp. technologists, the chain reaction that is likely to follow might be.

Caldera Inc. is looking hard at taking public in the not-too-distant future its Linux division, called Caldera Systems Inc., Caldera CEO Bryan Sparks confirmed.

Sparks said Caldera's founders have counted on going public at some point, hence the company's decision last year to divide the company in half, with the thin client division representing the rest of the Provo, Utah-based company's business. But the $96.6m (£59m) figure that Red Hat is bandying about, in terms of the cash it expects to raise, has Sparks thinking nearer-term, rather than of the future, he said. And Caldera's not the only one. According to various published reports, Linux hardware and services vendor VA Linux Systems is contemplating a similar IPO move.

Some leading Linux lights are predictably upbeat. Eric Raymond, leading open source evangelist, said he thinks, "the Red Hat IPO breaks welcome new ground for the open-source world. I expect it to be the first of many successful flotations by VA Linux Systems, LinuxCare and others. These are the giants of the next generation of computing being born."

Giants? Perhaps. Stock brokers vary widely in their opinions, but most say they hope, if not expect, that Linux IPOs will be the next generation Internet IPOs -- explosive launches shooting high into the technology stock sky.

Most observers were not in the least bit surprised by Red Hat's move. Rumours had been bubbling along for more than a year that Bob Young, Red Hat's CEO, was going to take Red Hat public. When Tim Buckley, former senior vice president of worldwide sales for Visio, became Red Hat chief operating officer in late April, those IPO rumours went to a fast boil.

With Red Hat's announcement late last week, the cat is now out of the bag. While the initial pricing range and the number of shares is still unannounced, what is known is that Red Hat will trade on the Nasdaq under the ticker symbol "RHAT." Goldman, Sachs & Company, is the lead underwriter. Other major players include Thomas Weisel Partners and E-Trade Securities.

Unlike many technology companies in search of a successful IPO, Red Hat is already doing well. Their SEC S-1 registration (available online at Edgar with registration) reveals a company that doubled its revenue for fiscal year 1999 with $10.8m (£6.5m) in revenue, compared with $5.2m last year with a minimal, for technology companies, net loss of $130,000.

So why does Red Hat, with such blue ribbon technology investors as Compaq, IBM, Intel, Novell, and Oracle need the capital and the burden of going public? Other than, of course, to make millionaires of its owners? The company plans to use the funds for working capital and nebulous plans of "geographic expansion" and business, product, and technology acquisitions.

Without Linux, Red Hat would be nowhere. At the same time, though, Red Hat will need to explain to prospective investors how Linux' open source model doesn't represent a risk. That's been an ongoing, albeit a winning, battle for Linux developers, administrators and resellers all along within pure technology. Whether Linux can win the hearts and minds of corporate investors is an open question.

It also won't help any, as the company acknowledges, if old line Linux programmers turn their backs on the "overly" commercialised Red Hat Linux. The all-important Linux community is already conflicted over the evolution of Linux into a commercial operating system. The IPO may highlight this problem.

Red Hat, as the most successful Linux distributor, has faced the most heat even before the IPO announcement. It has become fashionable for some Linux fans to describe Red Hat as "the Microsoft of Linux." They don't mean it as a compliment. For example, long time Linux user and system administrator, Phillip R. Jaenke, speaks for many who deplore Linux' commercialisation, when he says: "RedHat never cared about users. They never will. They want money. So they make an IPO."

Whatever the reasons, one thing is clear. Linux isn't just getting into big business; Linux is becoming big business.

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