Everyone's glass appears to be half full on this one.
Shares of Red Hat Inc. (ticker symbol: RHAT), VA Linux Systems Inc. (LNUX) and Corel Corp. (CORL) gained Monday on expectations that the software makers' sales could increase if rival Microsoft Corp. (MSFT) is split into two companies.
Microsoft rallied too, as some analysts said a breakup of the world's largest software maker would be good for investors, giving them stakes in two formidable companies.
VA Linux rocketed $18.44, or 44%, to $60.06; Red Hat jumped $2.81, or 11%, to $27.88; and Corel rose $1.34, or 20%, to $7.97. Microsoft, meanwhile, climbed $3.69, or 5%, to $73.44. All trade on Nasdaq.
The U.S. Department of Justice on Friday proposed breaking Microsoft into two companies, with one selling the Windows operating system and another in control of software applications. Such a split could force Microsoft to start developing its Office suite software for the Linux operating system, boosting sales at Red Hat, VA Linux and Corel, analysts said.
"I can see Linux lovers hearing this and saying, 'Wow, if this is bad news for Microsoft, it's good news for us,' " said analyst William Epifanio of J.P. Morgan Securities, who rates Red Hat a "buy."
Red Hat, VA Linux and Corel all trade far below their recent peaks.
Still, Epifanio doesn't think Linux software is a serious threat to Microsoft. Creating Linux software "is the last thing Microsoft would ever do on its own," said Epifanio, who also calls Microsoft a "buy." "Why on earth would they provide any support to a competitor . . . unless they are forced to?"
Not all Linux companies were celebrating Monday. San Francisco-based Linuxcare Inc. officially withdrew its planned $56.6-million initial public offering, joining the list of companies that have pulled IPOs and secondary stock sales recently because of market swings.
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Linux Gets a Lift
Shares of Linux software makers, which have been battered this year, rallied Monday on investor optimism-as did those of their mammoth rival Microsoft.
Ticker Monday close YTD % Est. Company symbol and change change EPS* Red Hat RHAT $27.88, +$2.81 -73.6% -$0.14 VA Linux Systems LNUX 60.06, +18.44 -70.9 -0.97 Corel CORL 7.97, +1.34 -47.3 -1.23 Microsoft MSFT 73.44, +3.69 -37.1 +1.69 S&P 500 index SPX 1,468.25, +15.82 -0.7 +56.31
* Estimated earnings per share for each company's current fiscal year, based on analysts' consensus
Sources: Bloomberg News, IBES, Zacks