Linux Mania Sweeps the Trading Pits

Updated from 3:28 p.m. EST

On Wall Street, it was a great day to sell Linux.

In a closely watched initial public offering, VA Linux Systems (LNUX) shares jumped to close at 209 25/32, 698% above its $30 offering price.

The excitement ricocheted across the market, turning to gold the stocks of many companies with the word Linux in their marketing materials.

So what was all the fuss about?

The Linux software is an operating system, much like the Windows NT software marketed by Microsoft (MSFT). It was first developed by Linus Torvald, a student at the University of Helsinki who posted his work on the World Wide Web and invited other programmers to help refine the software.

Versions of the software can be downloaded free from the Internet, but several companies have incorporated it into revenue-generating products.

All morning, shares of many of those companies made gains ahead of the VA Linux IPO, which began trading shortly after noon EST.

Red Hat (RHAT), a Durham, N.C.-based company which sells a version of Linux on CD-Rom and charges for maintenance and for help using the software, closed up 15 3/4, or 6%, at 286 1/4 by midafternoon, after trading as high as 291.

Shares of Andover.net (ANDN), which operates news and information Web sites for software developers and engineers switching from Windows to Linux, gained 15 5/16, or 24%, to close at 77 1/2 after trading as high as 90. The company is based in Acton, Mass., and went public on Wednesday.

Corel (CORL), a longtime Microsoft foe from Ottawa that once marketed the WordPerfect word processing program head to head against Microsoft Word, saw its shares soar 10 15/16, or 39%, to close at 39 1/4 after trading as high as 45. The company now sells simple versions of Linux.

Even companies that merely plan to use Linux in other software packages benefited.

Veritas (VRTS) picked the right day to announce that its data protection software would incorporate a Linux product from Red Hat. Shares of the Durham, N.C.-based company closed up 3 1/2, or 4%, to hit 107 15/16.

And Perle (PERL), of San Diego, chimed in with news that its network connection products would be ready to run on Linux by year's end, scoring a gain of 9 3/4, or 74%, to settle at 22 7/8.

"Linux really started off as a grassroots effort. That's starting to come to fruition," said Scott Kelly, chief executive of M&A West, a venture capital firm that styles itself as a so-called Internet incubator. The firm announced Thursday that it would start a fund to invest exclusively in companies using Linux. "Microsoft has been the platform that everybody has agreed or disagreed with but that you have had to go with."

Recent developments in the Department of Justice antitrust case against Microsoft may have Wall Street speculating on Linux companies, said Dan Kusnetzky, program director for operating environment research at International Data Corp. The research firm sells analysis to corporations, universities and brokerages, among other. It does not rate stocks or perform underwriting.

"Microsoft is in a weakened position at this point," he said. "What happens if Microsoft has significant difficulty?"

A Microsoft spokeswoman declined to comment on "speculation."

But the worst case articulated by trial observers has been a breakup of the Redmond, Wash.-based company, a move that wouldn't prohibit the sale of Windows software.

In 1998, the last year for which data was available, shipments of Linux products had generated a mere $34 million in revenues, according to IDC's research. In the same year, products using UNIX, another operating system that doesn't have to compete with free versions of itself on the Internet, generated $4.5 billion in revenue.

Microsoft couldn't immediately provide revenue figures for Windows NT.

Linux software has recently proven far more popular in offices than in homes. In 1998, according to IDC, the software had 15.8% of the 4.4 million-unit market for servers, the giant back-office computers that run corporate e-mail systems and the like. But among clients, industry parlance for PC owners, Linux products had only 2.1% of the 89 million unit market.

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