On Thursday, the seemingly unstoppable Linux operating system helped create
IPO history, when VA Linux Systems (LNUX)
, which is a leading Linux company, saw its shares skyrocket from $30
to $250.
Yes, Linux fever is spreading — affecting even stocks that have a remote
connection to the popular operating system.
However, investors need to be very careful. True, Linux is a fast-growing
operating system. It’s reliable, scalable and it’s free. The system
is modifiable by some of the smartest programmers around the world. Also,
Microsoft is under extreme pressure from the Justice Department.
Yet, there are some shaky companies, which are benefiting tremendously
from the Linux movement, that may give investors heartache. One is Corel (CORL)
. The company has a long-past, with much turmoil. Interestingly
enough, the company has been trying to compete against Microsoft in the
word processing and spreadsheet market — of course, with little success.
But, the company recently announced a product that helps beginners program
in Linux. What’s more, Corel is expected to release the Linux versions of
WordPerfect and CorelDraw in the second quarter of 2000.
Of course, the stock has been renewed. After trading in the doldrums for
many years, the stock has reached a 52-week high of $39-1/4. In fact,
there have been various takeover rumors of Corel (such as from
Red Hat (RHAT)
).
While Corel was smart in retrofitting its product line towards Linux, there
are problems. First of all, much of the Linux marketshare is in the
corporate world. Such things as desktop applications, like word processors,
are not widely used for Linux. Rather, business applications — perhaps for
e-commerce, business-to-business exchanges, etc. — would be much more
attractive.
Besides, there are several other competitors in the desktop
arena, like Sun Microsystems. However, Microsoft will likely control the
desktop market with its Office product line for many years, continuing to
make life difficult for Corel. Moreover, it would be costly (in terms of
training) to reorient companies away from the Office product line, which
already works very nicely.
With the momentum of Linux still very strong, it would not be surprising if
Corel continues its run. There is still lots of speculative excess in the
market. But once things calm down, Corel will likely be a stock that falls
hard.
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