Corel, Linmor shares ride the Linux rocket.
ottawacitizen.com
December 10, 1999
Once-obscure Nepean company's stock
soars from pennies to $2.48
Karyn Standen, with files from Bert Hill and Citizen News
Services
The Ottawa Citizen
The Linux juggernaut roared through
Ottawa yesterday, turning a little-known
network management firm into the
hottest ticket in town and sending Corel
Corp.'s stock to record heights.
Shares of Linmor Technologies Inc.
skyrocketed as much as tenfold after
the Nepean company said it is making
its entire network management product
line compatible with the Linux operating
system.
Linmor's shares closed up $2.11 at
$2.48 yesterday on the Canadian
Venture exchange.
Earlier in the day, the stock hit a new
52-week intraday high of $3.80, miles
above its low of nine cents one year
earlier.
The Linux onslaught flung Corel's
shares to a new 52-week high of
$64.65 yesterday, before settling to
close at $57.95 on the Toronto Stock
Exchange, a gain of $16.20 on the day.
The stock price has more than doubled
in the past four days.
In comparison, Corel's stock was
trading around $3 in March, its lowest
point in the past 12 months.
Corel's stock was the second-most
active issue in the U.S. where it climbed
$10 1 5/16 to close at $39 1/4 on the
Nasdaq.
Linux, developed by Finnish graduate university student Linus
Torvalds, is an open-source system, meaning that programmers
can rewrite its code depending on their individual needs.
The system is available free on the Internet, prompting some
observers to argue it threatens to topple Microsoft Windows'
domination of the desktop market.
Shipments of Linux-based computers are expected to climb 25 per
cent between now and 2003, more than doubling the projected rate
for other workstation and server systems, says International Data
Corp., a research firm based in Framingham, Massachusetts.
The possibility that Linux is the first real challenge to Microsoft is
fuelling the rocketing share prices of Linux-related companies.
Corel has made its WordPerfect software compatible with Linux,
and has developed its own version of the operating system.
The numbers surrounding Corel's stock are mind-boggling. The
share value has soared 850 per cent since Jan. 1, giving the
software company a market capitalization of $3.5 billion Cdn. (as
of yesterday's closing price). In March, the company was worth
$182 million.
In comparison, shares of arch-rival Microsoft are up only 39 per
cent since the beginning of the year, although the company has a
commanding $479-billion U.S. market value.
Corel's shares are trading at 163 times the estimated earnings for
its next quarter. Microsoft's shares, on the other hand, are trading
at 56 times earnings.
With a 11.4-per-cent stake in the company he founded, Corel chief
executive Michael Cowpland has seen the value of his holdings
soar to $390 million, up from $19 million in March.
All this is welcome news to diehard Corel shareholders, many of
whom have been hanging on to their stock since its bottom-feeding
days.
Judy Cedar-Wilson says her investment club holds about 50 Corel
shares, bought nearly three years ago at $3.15. She is,
understandably, "really happy" with the return of nearly 1,740 per
cent on their investment.
She wasn't concerned with Corel's dismal stock performance in the
past, saying, "It's the chances one takes when one makes
investments."
As for buying more stock, she says she is "cautious. I don't know
enough about Linux."
Brian McNally is less hesitant. He plans to add to his 300 Corel
shares, bought at $13.50 a share. He also regrets selling the 1,000
shares he bought in late November at $27.25 a share, only to dump
them later the same day at around $30.
"I should have hung on. I don't like to lose."
And the Linux wave got a fresh shot in the arm yesterday as yet
another Linux-related company went public amid frenzied
anticipation.
VA Linux Systems Inc., a Sunnyvale, California, company that
makes computers and software for the Linux operating system,
opened at $299 on the Nasdaq, a tenfold gain over its initial sale
price. That marked the best-ever first-day gain for an initial public
offering in the U.S. The stock settled somewhat to close at $239
1/4 yesterday, 697 per cent above its $30 offering price. The
closing price gives the company a market value of $9.5 billion U.S.
Intel Corp., the world's biggest chipmaker, is reported to have a
10-per-cent stake in VA Linux, which posted a $10.1-million net
loss in its fiscal first quarter ended Oct. 29.
Andover.Net, a U.S. firm that runs a network of Web sites aimed at
Linux and other software, saw its shares more than triple in its first
day of trading on Wednesday. The stock closed at $77 1/2
yesterday, up $14 1/8.
Shares of Red Hat, the North Carolina-based Linux distributor often
watched by investors for signs as to how other publicly-traded Linux
companies will fare, more than tripled when it went public in Aug.
The stock has risen 20-fold since then, and had another strong
showing yesterday, climbing $15 to close at $286 1/4 on the
Nasdaq.
The question everyone is asking, however, is how long Linux-mania
will last.
"In terms of Linux, it's not proven yet that this thing is prime time, but
certainly the momentum behind it is very strong," said Ian
Ainsworth, a portfolio manager of Altamira Investment Services
Inc.'s Canadian equity fund. "There is an opportunity. But I'm not
sure we've really proven the values that people are seeing now."
"It's run well ahead of what we think reality is."
Avner Mandelman, chief investment officer at Toronto's Giraffe
Capital Corp., says Linux-related companies are benefiting from a
U.S. federal court's recent preliminary ruling that Microsoft is a
monopoly.
"I think people are banking on the Microsoft franchise becoming a
little bit weaker, because right now there are two federal judges
trying to wrestle Microsoft to some conclusion."
A potentially significant hurdle to Linux-related companies,
however, is the fact that some Linux followers are now trying to
create applications that can be given away free along with the
operating system. This poses a challenge to companies looking to
make money off Linux, say analysts.
When asked how companies such as Red Hat or Corel could
overcome this hurdle, Mr. Mandelman said: "You tell me."
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