(FORTUNE Magazine) – How do you stop an army of penguins? That isn't a question from a South Pole scientist's bad dream. But it is a question Sun Microsystems and Microsoft are asking. The penguin, in case you don't know, is the symbol of Linux, the free operating system software that burst on the scene in the late 1990s, complete with a frenzy of IPOs. In the beginning it was wiggy and unproven. But as thousands of developers worked away at the code, and as companies like IBM began servicing Linux-based systems, corporate America has begun to pay attention. (For more on Linux and consumers, see "Bringing Linux to the Masses.") Nowhere is that shift more apparent than on Wall Street, where big boys like Merrill Lynch, Morgan Stanley, and CSFB are switching from Unix to Linux in droves.

"You're in an arms race in terms of computing power," says Jeffrey Birnbaum, global head of Enterprise Computing at Morgan Stanley. "Every bit of performance helps. Linux enables you to reap the benefits of the Intel platform." Birnbaum says that since November 2001, Morgan Stanley has installed 900 servers that run Linux. And Wall Street is often ahead of the mainstream in adopting new technology. (If the network crashes at Yankee Candle, the candles ship out a day late. If the network crashes at Goldman Sachs, the firm's quarter may be in jeopardy.)

Though Linux can be downloaded free off the web, most companies buy inexpensive packages from outfits like Red Hat, which customizes the software and offers tech support. The companies then look to other vendors--particularly IBM--to help integrate Linux with their other computer systems. In September, Big Blue opened a new Linux service center in Manhattan for Wall Street customers like E*Trade, Salomon Smith Barney, and J.P. Morgan Chase. "IBM announcing they were embracing Linux three years ago was key to us, because then we had an organization we could call upon at 2 A.M. on a Saturday morning if we had issues," says Merrill Lynch CTO John McKinley.

Mind you, the Linux penguin isn't about to overrun Wall Street. Dushyant Shahrawat, an analyst with the Tower Group, estimates that Linux servers have a 7% market share there. Still, that's up from 0.5% just two years ago. "Linux right now makes the most sense in low-level operations where you have a lot of processing done at the same time, like retail brokerage," says Shahrawat. "Linux isn't sophisticated enough yet and doesn't have enough applications to run the most high-end functions. But that will come."

For now, Linux business is coming mostly at the expense of Sun. Linux believers say a system using Sun's servers offer no demonstrable advantages over the plain-vanilla servers running Linux, despite being roughly 50% more expensive. Linux may also carve into Microsoft's NT server software market, but since NT is significantly cheaper than Sun's Unix offerings, it hasn't been hit as hard yet on Wall Street. Of course, the fact that Linux frees the Street from being beholden to either Microsoft or Sun's proprietary business models is another draw. "Ultimately, we like agnostic solutions," says Merrill's McKinley, who has led a big push for Linux. Increasingly that's what the proprietary companies are up against. That and an army of penguins. --Andy Serwer