LinuxCare on Thursday internally announced a restructuring involving an undisclosed number of layoffs, a company spokesman has confirmed. Some analysts see LinuxCare as the first big victim of a Linux shakeout.
After the sudden departure last month of CEO Fernand Sarratin and the company's decision to call off its initial public offering (IPO) on Monday, LinuxCare will cut costs and refocus on high-margin services such as enterprise integration. The spokesman said the CEO search and the current IPO climate were the main reasons for calling off the IPO, which, in turn, necessitated the cuts.
"Because of the delay in our IPO, we needed to reduce our burn rate and decrease our costs," said Michelle Nemschoff, senior director of corporate communications for LinuxCare.
Jeff Hirschkorn, an analyst at IPO.com, predicted the company will fare even worse in the near future.
"LinuxCare will get bought out or go bankrupt, forget about an IPO," said Hirschkorn.
Nemschoff said the company was looking for additional funds by an IPO or other means, but denied that LinuxCare was looking for a takeover partner.
Hirschkorn says he believes that only a handful of top-tier Linux players will do well - including Red Hat, Cobalt Networks, Caldera Systems, VA Linux Systems; and the privately held TurboLinux.
LinuxCare was initially seen by analysts as a strong Linux play because it derives its income from services, not software sales. But despite Linux service contracts with big names such as IBM, Compaq Computer and Sun Microsystems, LinuxCare's revenue for last year was a mere $US1.5 million. It had a net loss of $US21.4 million.
According to the company's S-1 filing with the Securities and Exchange Commission, LinuxCare had 130 employees in December. But the spokesman said that even after the cuts, the total employee count would be significantly higher than that number because of hires in the first few months of the year.
Linux stocks have been under pressure the past few weeks, despite a brief recovery earlier this week after the Department of Justice announced its plan to break up Microsoft. Red Hat, for instance, was trading around $26 on Thursday, far below its 52-week peak of $US151.31. VA Linux was trading at around $55, down from a $320 peak.