Plenty of new Linux stocks, but no Red Hat

Investors who missed out on last year's Linux success stories will get a new chance this month, as several Linux companies prepare to go public. The consensus from the analysts: LinuxCare [Nasdaq:LXCR proposed] looks promising, but be careful with Caldera Systems [Nasdaq:CALD proposed] and stay away from LinuxOne [Nasdaq:LINX proposed].

LinuxCare in San Francisco and Caldera Systems in Orem, Utah, both priced their initial public offerings this week. Both are highly regarded Linux companies, but they have little revenue and mounting losses.

Caldera Systems is selling 5 million shares at $7 to $9 per share - a price that's likely to be raised before the company goes public. Caldera was spun off from Lindon, Utah-based Caldera in 1998. Last year, it had sales of $3 million and losses of $9.4 million. That's a much smaller sales figure than that which its largest competitor, Red Hat [Nasdaq:RHAT], had when it went public last year, says Bill Claybrook, an industry analyst at Aberdeen Group in Boston.

Claybrook says Caldera also trails Red Hat in brand-name recognition, and is being eclipsed by TurboLinux as the No. 2 Linux distributor. TurboLinux is the leading Linux distributor in the Asia-Pacific region and has been developing clustering technology on top of Linux. Claybrook says the Linux market is headed for consolidation.

On the plus side, Caldera has come up with an effective Linux business model based on software distribution through a retail channel, says Jeff Hirschkorn, a senior market analyst at

But that's not enough to sway Irv DeGraw, research director at in Sarasota, Fla., who says Linux software and hardware stocks have little future. He says he sees much more upside professional services.

DeGraw says he's much more optimistic about LinuxCare, the company that was tapped by Dell Computer [Nasdaq:DELL], Hewlett-Packard [NYSE:HWP], IBM [NYSE:IBM], Sun Microsystems [Nasdaq:SUNW] and others to provide Linux professional services to their respective customers. LinuxCare lost $5.1 million on revenue of $156,000 for the quarter ended September 30.

But there's one caveat: For the period ended September 30, three major customers represented a combined 74% of LinuxCare's revenue.

"What happens if they lose one of their top partnerships?" asked Hirschkorn.

Analysts say they have little patience with LinuxOne, a virtually unknown start-up in Mountain View, California, that recently launched a Linux distribution that's seen as a transparent attempt to cash in on the Linux hype.

"Stay away from the deal," warns Hirschkorn.

Says DeGraw: "It's an embarrassment that could hurt the whole industry."

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