Linux chief stays optimistic

April 3, 2001: 6:35 p.m. ET

VA Linux chief executive says business to remain bright despite gloomy economy
By Staff Writer Richard Richtmyer

CHICAGO (CNNfn) - VA Linux may have had to re-think its business strategy recently in the wake of the dot.com meltdown, but its top executive still thinks the prospects for businesses that specialize in the Linux operating system are nonetheless bright.

Larry Augustin, the company's CEO, addressed a roomful of the Linux faithful gathered at the Comdex technology convention and trade show taking place here this week and reaffirmed his belief that the principles that have driven the development of Linux will continue to foster its adoption in the mainstream of computing.

In fact, the slowdown in the economy, which has caused his company and a slew of other high-tech firms to retrench recently, could even boost its adoption in corporate enterprises, Augustin said. VA Linux sells hardware, software and services based on Linux.

Linux is an "open-source" operating system. That means the underlying code that makes it work is available for anyone to view and modify, as long as they share their modifications with the rest of the Linux community. That's a drastically different model than that employed by proprietary operating system vendors, such as Microsoft (MSFT: Research, Estimates), which closely guards the source code for its Windows operating systems.

With Linux, Augustin argues, information technology managers will not only reduce the cost of acquiring the operating system software � it can be downloaded from the Internet for free � but at the same time they will have the flexibility to customize it for their specific operations.

"When you have the source code, you can build a solution that meets your needs," he said.

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Being able to modify the source code also will enhance systems engineers' ability to integrate disparate computing platforms within a corporate enterprise, another cost benefit, Augustin said.

Why was Augustin espousing the benefits of Linux within the corporate enterprise? It could partly be because that's the market the company is shifting its focus toward now that the Internet bubble has burst. Linux is also finding its way into handheld devices.

Dot.coms were the bread and butter of VA Linux (LNUX: Research, Estimates), which went public in August 1999 in what at the time was a record-breaking IPO. After being priced at $30, its shares soared more than 690 percent on their first day of trade.

At Tuesday's close, VA Linux shares stood at $2.09.

What happened? "We went out in particular and targeted dot.coms. A lot of our growth in the company was fueled by selling into those markets," Augustin told CNNfn.com in an interview.

"What we've seen, and what's obvious to everyone, is that there's been a big fallout in that sector," he added. "And frankly, we have to retarget our sales force and move into those other customers. And that takes time. So we're suffering from the general market conditions, the economy and it was our particular focus in the sector that got hit hard."

When VA Linux reported its latest quarterly earnings results, the company logged a wider-than-expected operating loss, set job cuts and named a new chief operating officer.

The company also said it does not expect to turn a profit until October 2002, nine months later than it previously had expected.

Still, Augustin, who has been one of the industry's most outspoken advocates of the open-source idea, said Linux, which historically has had a cult following but has made its way into the computing mainstream, still has a lot of potential.

"You have to distinguish between stock price and the potential of the target market. Linux adoption is continuing, and Linux growth is continuing," he said.

And most market studies back up that claim, at least in the server market.

A recent report from technology research firm International Data Corp. showed that Linux � whose original following was technically sophisticated users � was installed on 27 percent of the world's network servers, while Microsoft's Windows was on 41 percent.

That same report showed Linux is growing at a rate of 24 percent to Microsoft's 20 percent, thanks in part to mainstream computing companies such as IBM (IBM: Research, Estimates) and Compaq (CPQ: Research, Estimates), which recently have thrown their weight behind it.