Report: IBM, Intel come to aid of struggling SuSE Linux

Open-source software maker SuSE Linux has narrowly avoided insolvency after investors agreed to a new round of financing, according to a newspaper report. Backers will provide the struggling German company with 50 million euros ($45.5 million) in fresh funding, the Frankfurter Allgemeine Zeitung said in its Thursday edition, citing unnamed industry sources.

"With the new round ... IBM will apparently get on board," the paper said, mentioning Big Blue's recent support for the Linux operating system. Other SuSE investors pumping in more cash include Intel and the venture capital firm Apax Partners, according to FAZ.

SuSE spokesman Christian Egle confirmed that the company is in negotiations with potential investors, adding "it looks good," but declined to confirm any details.

"I can tell you in good conscience that a not insubstantial part of the information in the FAZ is incorrect," he said, without elaborating.

The company has been in turmoil in recent days, with President and CTO Dirk Hohndel announcing his resignation Tuesday, just a month after CEO Roland Dyroff was replaced.

Intel and Apax provided SuSE with a first round of financing totaling 12 million euros in late 1999, SuSE said in a statement. Intel at the time mentioned its plans to promote the open-source operating system for its processors in Europe - and indeed, the chip maker is continuing to introduce new Linux-based applications.

Egle sounded an optimistic note about the future.

"Linux is well on the way to overtaking Windows NT or 2000 in the server market. Already in recent years it's been established as number two," he said, overtaking the Unix and Novell NetWare operating systems, for example. "Really, it's a terrific number two."

He cited the engagement of big players like IBM and Compaq Computer Corp. as key factors for continued growth. But one observer said the bloom is off the Linux rose in such mainstream circles.

"There is a market for (Linux), but it's not going to grow as much as people thought about a year ago," said Charles Homs, a senior analyst at Forrester Research in Amsterdam. "It's always been a fairly small, stable user group that's interested in it, and I don't think that will change."

Large companies like IBM put some muscle behind Linux at a time when Microsoft was under intense scrutiny by the U.S. Department of Justice, he said.

"People were looking at potential alternatives: 'What happens if Microsoft splits up? Maybe there's new hope for Linux.' Now that we know that's not going to happen, or at least extremely unlikely, that means less interest in Linux," he said.

Other Linux companies suffering hard times include VA Linux Systems, which said in June it would quit the hardware business and lay off 35% of its employees, citing the collapse of the dot-com market which had been its focus.

And Dell Computer has dealt a blow to Linux fans by quietly eliminating the operating system as an option on its PCs.

The IDG News Service is a Network World affiliate.

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