Linux Rising

Some reasons why even though VA Linux's is at a 52 week low, it is set to improve pretty soon.
Written by Charles Babcock, Contributor on

Does a decline in Linux stocks represent a decline in the Linux operating system? If it does, then many Web sites had better prepare for system crashes.

The stock price of the most popular North American distributor, Red Hat, has gone from a 52-week high of $151 per share to a low of $15, and is now floating around $20.56. Likewise, systems integrator VA Linux Systems, which reached $320 per share within two days of its launch in December 1999, has stayed close to its 52-week low of $26.50, closing at $35.06 on Aug. 7.

If the stock prices were reflective of the technology itself, Linux operating systems (OSes) everywhere would be sputtering and Linux-based Web servers would be in danger of exhibiting their own version of the blue screen of death.

That's hardly the case. Linux stocks are headed for a cautious and steady rise, because the technology is not only sound, but is gathering strength fast. The meteoric rise of Linux stocks - and their collapse - was based on the erroneous perception that Linux would sweep across corporate desktops and servers - a perception based on the assumption that Microsoft, with its antitrust problems, would decline.

The main reason to be bullish on Linux's future is not that it will replace Windows. Rather, like Microsoft once was, Linux is the technology that is best aligned with a changing economy and will grow in step with it. This means, of course, in some instances Windows and Windows 2000 servers will be replaced by Linux, but that is a minimal definition of success.

Rather, Linux's real role is to power the Web servers, application servers, database servers and data warehouses/ data mining servers of the start-ups and new Internet companies. In this role, it will substitute for Unix at least as frequently as Windows. And Linux companies, more than any other Internet stocks, are undervalued at the moment.

The customer-focused old hands at Hewlett-Packard see this clearly. They can be characterized as more OS neutral than their counterparts at Microsoft or Sun Microsystems, and they are prepared to implement Windows, Unix or Linux for their customers. And that puts them in a position to do what so many start-ups, such as mPower Advisors in San Francisco, an online employee 401(k) and other benefits service, do today: They start out with Linux and use it up to the point where they have outgrown its capabilities, then switch to HP-UX, IBM's AIX or Solaris.

Doesn't that spell a certain ceiling on Linux's future? Not really. Today, many companies have to graduate from Linux to a version of Unix as their businesses grow into the gigabyte database range. Unix remains the system of choice for large database/data warehouse systems.

But more and more large system features - such as file journaling for quick recovery from crashes - are being incorporated so Linux can better manage large servers. HP, IBM and Silicon Graphics Inc. all have a vested interest in Linux's success: IBM and SGI have contributed Unix journaling code to Linux developers. Linux gives them entree to the young companies on the Net, and it offers them a means of directly competing with Sun's Java and Internet servers.

Today, the IBM mainframe and Sun Enterprise 10000 server are the iron horses of e-commerce sites. Tomorrow, the chips based on Intel Architecture 64 will serve as the building blocks of equally powerful servers at lower prices, and Linux has always run splendidly on Intel hardware.

As its bulletproof characteristics grow, so will the steed beneath it, until it's the iron horse of the Internet.

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