Linux Firms in Line for IPOs Hope for Red Hat-Like Success

Cobalt Networks, VA Linux Systems, LinuxOne and Andover.net are among the Linux companies expected to make their market debuts soon.
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Linux companies are lining up to go public, but don't expect all of them to match the hugely successful

Red Hat

(RHAT)

IPO.

More than a half-dozen companies that provide hardware, software or support for Linux are expected to go public by early 2000, with the first among the notables set to hit the market Friday. That's no surprise: When Red Hat, the Durham, N.C.-based Linux software distributor, went public on Aug. 11, it surged over 270% on its first day. And it didn't quit there. It's up over 500% from its offering price of 14 and is credited with putting Linux on the map for investors.

"Red Hat's IPO helped everyone," says Nancy Pomeroy, a spokeswoman for

Caldera

, an Orem, Utah-based Linux software distributor that's expected to join the crowd going public. "It's validated Linux on the business front."

But just because a prospectus mentions Linux doesn't automatically make for a red-hot offering. (Linux is the open-source operating system and would-be

Microsoft

(MSFT) - Get Report

competitor that was developed by a community of programmers.) Inevitably, some of the companies could see their shares sink.

"This is going to be a lot like the Internet space has been since

Netscape's

IPO," in August 1995, says Andy Rappaport, a partner with

August Capital

, a Silicon Valley venture capital firm with stakes in two Linux-related companies,

TurboLinux

and

Cobalt Networks

. "There will be a lot of wheat and a lot of chaff."

That said, the parade is scheduled to start Thursday, with the pricing of a 5 million-share offering by Cobalt (COBT:Nasdaq), a Mountain View, Calif., maker of "server appliances" that run mail or Web servers on Linux operating systems. The highly anticipated offering is backed by

Goldman Sachs

, which underwrote Red Hat's IPO. The range for the deal is 14 to 16 per share, though analysts expect the price to be increased, indicating substantial demand.

Also expected to come to market in the foreseeable future is

VA Linux Systems

, a Sunnyvale, Calif., company that makes high-end computer servers and workstations for corporations. It's expected to go in December.

LinuxOne

, a Linux software distributor out of Mountain View, Calif., and

Andover.net

, a content company in Acton, Mass., specializing in Linux-related links for developers, are in registration.

In coming months, Linux software distributors Caldera,

MandrakeSoft

and TurboLinux, along with Linux support provider

Linuxcare

, which has backing from venture capital firm

Kleiner Perkins Caulfield & Byers

, are all expected to file with the

Securities and Exchange Commission

to go public.

Because the industry is so new, it's tough to determine how the sector will develop. There are some "first movers," including Linuxcare and Cobalt, in the support and hardware categories, respectively, but that doesn't mean they will necessarily corner the market.

"This area is still very new and young," says Paul Bard, an analyst with

Renaissance Capital's

(IPOSX)

IPO Plus Aftermarket fund.

Linux developers hope the sector reflects the Linux community -- room for everybody to have a part. "A lot of people have jumped into Red Hat stock with the idea that Red Hat is Linux or that it can somehow dominate the Linux market," says Jonathan Corbet, a Linux developer and editor of the

Linux Weekly News

. "But they're going to discover that Linux doesn't work that way."