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By Bloor Research, 5 February 2001 08:30

COMMENT At LinuxWorld, IBM's Sam Palmisano kicked things off announcing Big Blue has a 64-processor server capable of running existing Linux applications unaltered by utilising middleware. He went on to herald Tivoli's support for the platform and Domino Workflow for Linux. When these products are coupled with IBM's announced $1bn investment in all aspects of the open source environment, including hardware, software and services, it is clear that IBM is taking Linux very seriously indeed. After all, Palmisano said he does not write out such cheques "without some scrutiny". Also at the show Sun released a version of Java for small devices, called the "connected device configuration" of Java. This version is designed for set-top boxes, in-car computers and other consumer electronic devices. Sun has always been troubled by Linux, seeing it as a direct threat to its own Unix platform, Solaris. However, it clearly wants to see Java running on every device and OS possible. Plus with Linux a threat to Sun's number one adversary, Microsoft, it may be a case of any enemy of my enemy is my friend. Well, sort of. Among a host of other announcements, Dell and Oracle have joined forces to create a Linux testing centre in Austin, Texas. Dresdner Kleinwort Wasserstein is teaming up with open source provider CollabNet to build an online community around the open adaptor toolkit technology. All of these follow hot on the heels of release 2.4.1 of the Linux kernel, with its improved support of multiple processors and faster execution times. In all the news mentioned so far, the one company whose name illuminates the sky by its absence is Microsoft, which alternately attempts to ignore Linux. Last week, Microsoft's product manager for competitive strategies, Doug Miller, was quoted as saying the new Linux kernel is unsuited for widespread business use, highlighting recent security issues. Microsoft has had its own security issues recently and we clearly have a case of the pot calling the kettle black. However, it is clear that many Linux companies have yet to find a business model that can work in the medium term. Corel's announcement that it is getting out of Linux through the impending mergers of LinuxCare and TurboLinux may indicate the start of a radical consolidation amongst suppliers. Linux has a place in business, but it is still in the adolescent phase of growth. It will be interesting to see if the teenager can develop into a mature adult or will continue to be a bit of a rebel. After all, it needs to earn some money soon - parents cannot be expected to support students forever. *So long Psion and Motorola*
Some days are best forgotten. Psion had one of them last Monday when Motorola pulled out of a joint venture to provide pocket internet devices and then analysts Canalys came out with a report saying the company had lost around half of its market share in Western Europe. As a result, it has been explaining its business instead of getting on with it. The Canalys report claims that Psion had failed to take into account a small change in the market - the fact that users now prefer to use stylus operated devices rather than those with keyboards. Canalys supported its claim with figures that show improvements in sales from Compaq, Handspring, HP, and Palm that outstrip any possible growth from Psion. For its part, Psion says that Canalys doesn't even have the Psion sales figures correct and so the other data cannot be trusted. In truth, it is probably best to discount the Canalys report because somebody has clearly missed something. The actual figures cited on each side of the argument are widely apart but there is little doubting that Psion did underperform last year. This is reflected in a second profit warning issued recently, reducing pre-tax profits for 2001 by a further £12m. This is to be followed by a restructuring exercise seeing 100 jobs go. On the other hand, it is not possible to ignore the pain that will be caused by the withdrawal of Motorola from the pocket internet joint venture. The break up of this venture has been blamed on reorganisation within Motorola that has brought about the cancellation of many other projects. Psion is now looking to its involvement with the Symbian consortium to try and rescue the concept and still get a product to market by 2002. *No options?*
Offering stock options is often an easy alternative to paying high salaries. The thinking behind it is that it encourages employees to produce the goods because they stand to gain from the prosperity of the business. For a while things looked good and, on paper, a lot of people were making a fair amount of money. Then came the high-tech crash last spring and, suddenly, options don't look so good. The economics of this change could cause some problems in an industry where the search for profitability has become an issue. If executives are suddenly demanding their money in guaranteed payments rather than in less tangible forms of currency, the consequences go straight to the bottom line. Suddenly the wage bill goes up, profitability drops (sorry, losses increase) and the value of those options falls even further. We only have to look at Amazon to see the confusion this causes. It has been involved in a discussion with its employees for some time to find a resolution to the problem of the falling value of stock options. Many Amazon employees with stock options are now finding them to be of little value. What is more interesting is that, in its pursuit of profitability, Amazon has laid off a whole pile of its staff and offered stock options as compensation. The difference here is that these are options that can be exercised in 2003 - a year after Amazon predicts profitability. Clearly, this is some sort of rollercoaster ride where stock values are currently in the dip. Things will start to look up again once high-tech businesses sort out their business plans and start to achieve profitability. In the meantime, it is quite likely that a good proportion of businesses will sink under the weight of their wage bills.