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Open Source Wall Street on Linux Momentum - "Linux Shines"
Wednesday, April 27 2005 @ 12:41 PM EDT

With all the questionable "studies" being floated around about Linux, how about a reality check? It is refreshing to note that Dion Cornett's Open Source Wall Street for April 26, 2005 adopted a unique method of measuring Linux momentum. He listened to what companies actually said about Linux and its effect on their bottom lines in their financial reports.

And what did he find? "Linux shines."

Note he also says that Microsoft's decision that Virtual Server 2005 with its Service Pack Update 1 would support Linux means Open Source software has now reached critical mass. Here's part of what he wrote.

********************************

Despite a choppy technology market, Linux shines

As evidence of Open Source Software’s growing importance, a broad array of technology companies reporting last week included, in their commentary, statements relating to Linux and Open Source software in general. While most of the companies mentioning Linux discussed it in terms of having a positive impact on their business, often driving their fastest growing revenue component, some such as SGI (SGI: not rated), directly attributed weakness in their business to Open Source-led commoditization. In any event, three primary themes were apparent: 1) the ecosystem of Open Source solutions is growing rapidly, 2) the replacement of RISC-based architectures with x86-base systems remains an important driver, and 3) enterprises are willing to pay for support of Open Source solutions.

Specifically as it relates to Linux’s growing ecosystem, Sybase (SY: not rated) reported that a third of new wins during the quarter came from applications running on Linux and that a recent IBM (IBM: not rated) partnership geared around their database engine, Adaptive Server Enterprise (ASE) for Linux, was proving successful. Pervasive (PVSW: not rated) indicates they have begun to see “exciting levels of market acceptance and commercial deployment” of Linux in support of their OSS database, Postgres. Emulex (ELX: not rated) reported they are “winning Linux-based business” and have their Open Source driver version 8, which supports binding of remote storage volumes, installed on RHEL 4. Even Microsoft (MSFT: not rated) announced last week that they would be providing Linux support in their new virtualization product. Finally, Informatica Corp. (INFA: not rated), a data integration vendor, believes that their early support of Linux provides a competitive advantage when competing against Ascential (ASCL: not rated), recently acquired by IBM. While we suspect that IBM will quickly improve ASCL’s Linux capabilities, we believe that Linux’s new role as a competitive weapon speaks to its growing influence. . . .

The bottom line is that we believe Red Hat (RHAT: Outperform) and SuSE (NOVL: Outperform) remain at the core of a growing ecosystem whose growth is compelled by significant hardware savings, competitive positioning, and the desire for improved manageability and security.

Understanding EMC’s fastest growing business helps explain why Linux should do well
Last week EMC reported revenue of $2.24B for the Mar-qtr, up 20% year-over-year, with software sales now constituting 37% of total revenue, up 26% year-over-year. More importantly, EMC’s VMware business was up 104% versus the prior year to $80M. VMware’s success particularly bodes well for the Linux vendors, as virtualization is often a key component of an enterprise consolidating multiple UNIX servers to a reduced number of x86 servers running Linux. Furthermore, we believe that EMC’s software success during the quarter validates enduser feedback we have received, which suggests that Infrastructure Software spending, particularly when related to initiatives such as resource consolidation and SOX and HIPAA compliance, remains a priority relative to other IT investments.

MSFT’s tacit approval of Linux
In an attempt to compete with EMC’s VMware, MSFT announced last week that Virtual Server 2005 with its Service Pack Update 1 would support Linux. We believe MSFT’s announced support for Linux validates our thesis about the broadening adoption of OSS. Furthermore, it indicates to us that OSS has reached a critical mass since MSFT offered this product in response to customer demands for better support for non-Windows machines. Finally, while MSFT potentially sees the move as a way to incrementally take applications away from Unix/Linuxbased systems, we believe the risk is much greater for MSFT that Windows-based servers will find incremental portions of their workload siphoned off to arguably more secure and stable Linux applications.


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