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Microsoft Ruling Puts Linux Show in Limelight

By Susan Taylor

OTTAWA (Reuters) - Companies championing the Linux computer operating system as a challenger to Windows are meeting in Montreal this week, hoping last week's antitrust ruling against Microsoft Corp. will revive their flagging stock market fortunes.

A string of Linux heavyweights -- including Corel Corp., Red Hat Inc. and VA Linux Systems Inc. -- will highlight their achievements at Linux Expo 2000, which opens on Monday, wishing, no doubt, that Microsoft's pain will mean a gain for companies that sell Linux open-source software or services.

``The Microsoft news should shine an even stronger light on this Linux conference as people are trying to understand how Linux could impact Microsoft,'' said Tim Bajarin, president of technology researcher and consultant Creative Strategies Inc.

``There's no question in our mind that the open source movement is very important to the future of computing.''

While Microsoft's Windows NT is a closed, proprietary system, Linux is open source and free. Companies make money by selling Linux services or specialized versions of the system.

Euphoric investors initially could not get enough of Linux companies -- which they viewed as contenders to Microsoft's throne.

``Pretty clearly, the enthusiasm that the market had late in '99 has cooled and the stock prices are all down significantly,'' said Jean W. Orr, analyst at Bluestone Capital Corp.

``Excitement about Linux caused the stocks to start moving up, and the momentum feeds on itself. As the attention has moved to some other areas, the momentum players see the momentum slowing down and move on.''

In another sign of waning market demand, Linux services firm Linuxcare Inc. has shelved plans for an initial public offering, which was expected in the next few weeks, a report in the Wall Street Journal said. Market unpredictability was to blame for the delay, the report added.

Shares of Ottawa-based Corel (Toronto:COR.TO - news)(NasdaqNM:CORL - news), known for graphics and word processing software until last year when it entered the Linux sector, have taken a dramatic tumble. Corel warned recently of two more money-losing quarters.

From its record high of C$64.65 in December on the Toronto Stock Exchange, Corel shares have slipped nearly 77 percent to trade at C$14.90 on Monday.

``The technology is real and seems to be making advances in many areas,'' said David Wright, technology analyst at Nesbitt Burns Inc. ``The valuation is taking a bit of a reality check.''

The stuffing has also been knocked from shares in Linux bellwethers Red Hat Inc. (NasdaqNM:RHAT - news), a Linux distributor, and VA Linux Systems Inc. (NasdaqNM:LNUX - news), which develops software and products for the system.

Red Hat stock, which split two-for-one on January 7, was closed down 3 3/4 at 34 3/8 on Nasdaq on Monday, well down from a 52-week high of 151 5/16, while VA Linux has slipped from a high point of 320 this year to a close of 49 15/16 on Monday.

``The bloom is definitely off the rose,'' said Bajarin. While Linux is making advances in the server market, he said it has stalled in the valuable desktop market because there are several different versions, or user interfaces, including one developed by Corel.

Companies attending the three-day Linux Expo and keynote speakers who appear on Tuesday must show there is demand for the technology, Wright said.

``There's no question they have to continue carrying the rallying cry of open source,'' said Bajarin.

``Secondly, they've got to continue getting more and more developers working around that open-source strategy.''

 

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