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The Day Ahead: Caldera preps IPO as Linux hype fades

Will Caldera Systems miss out on all that Linux IPO euphoria?

Linux stocks, such as Red Hat and VA Linux, have come down from the stratosphere, losing some of their Wall Street luster. But losing some of Linux hype is healthy for the market, although it's not going to do Caldera any good. Caldera, which recently settled a lawsuit with Microsoft, needs all the Linux hype it can get.

The company, which offers Linux operating system software and systems for specialised servers, has lost some of its good timing. Caldera got a lot of attention in January when it filed for an IPO in the midst of the Linux gold rush. But now it's a different story.

Caldera is offering five million shares expected to price between $7 and $9 (£4 and £5) on Thursday night for trading on Friday. Robertson Stephens is the lead underwriter.

According to the Linux IPO two months ago, Caldera's price range should be bumped up and the stock should rocket. VA Linux set a first day IPO record, so Caldera could also hit the jackpot. But don't bet on it. The stock market is volatile, and Caldera could come off as a "me too" offering.

Caldera's IPO should be good, not great, according to David Menlow, chief of IPOfinancial.com. "There's a little room for a few more Linux companies, but you won't get a 300 point pop," he said.

Caldera's regulatory filings definitely have a "me too" ring to them. For starters, Caldera distributes its version of the open source Linux operating system, and sells services and support around it. It's a formula used by Red Hat and VA Linux, which is primarily sells Linux computing systems. The company, which began operations in 1994, goes on to cite statistics showing that the market for Linux servers will balloon, and emphasise its strategy of focusing on "Linux for e-Business". It's so boilerplate.

Caldera's focus on e-business hasn't brought in a lot of sales so far. Sales for the year ending 31 October were $3m (£1.8m) with a loss of $9.36m (£5.8m). For the quarter ending 31 January, sales were $553,000 (£342,860) with a loss of $5.5m (£3.4m). For investors, the most disconcerting part of those financials is the January quarter -- sales were flat from a year ago. Nearly 75 percent of sales came from distributors such as Ingram Micro, Navarre and Tech Data.

Compared to its other Linux peers, Caldera is also lagging. VA Linux reported sales of $20.2m (£12.5m) for its January quarter. Red Hat reported sales of $5.4m (£3.3m) in its latest quarter ending 30 November. Red Hat reports earnings at the end of the month.

Put simply, there's nothing terribly distinguishing about Caldera, which is why we're in for a potential so-so IPO. VA Linux and Red Hat have gobbled up much of the mind share, and there may not be room for many more players. Caldera said growing a brand is one of its biggest priorities. And it will need a strong brand to rise above the noise.

Caldera faces competition from Berkeley Software Design, Microsoft and a joint venture involving Compaq and The Santa Cruz Operation to offer software for specialised servers. Cygnus Solutions, owned by Red Hat, VA Linux and Wind River, provides similar software with its hardware packages. You can throw in Sun Microsystems as competition, too. "We also compete with other providers of Linux operating systems, particularly, Corel, MacMillan, Red Hat, SuSE and TurboLinux," the company said.

Aside from the Linux crowd, Caldera also competes with more established companies, including IBM and Novell. It could be tough in the IPO after market for Caldera, especially since much of the Linux hype has faded.

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