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Open Source & Embedded
Embedded Geek writes "Jack Ganssle has posted a column at embedded.com pondering whether Red Hat and other open source companies serving the embedded community are due a shakeout similar to the dot com collapse. He cites Red Hat's March cuts in their embedded division and their losses of $80M to $140M a year. He admits, though, that because the embedded market is smaller and many companies are privately held it is difficult to get a pulse on what's going on behind closed doors.
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Right now, it's more like "Which company isn't having financial issues."
This stuff is getting rather old. Everyone is having a tough time being profitable and I don't believe "opensource" is the reason why RedHat is struggling. You name the company, products and services that were selling well in 97-00 are no longer doing that well. EMC and Sun which used to be very profitable at what they did are having to switch gears. Cisco is having it's share of problems. Software or hardware everyone is struggling and Opensource companies are still trying to figure out how to make a profit on a service model.
Folks this isn't news and really doesn't need to be argued over but Opensource isn't the next "Dot com bubble" that is going to burst. Opensource, Redhat, whatever... everything is having trouble right now. Let's not make this out to be more than it really is.
Red Hat's March cuts in their embedded division and their losses of $80M to $140M a year.
Do I need to explain the concept of "Goodwill" yet again? Why do people keep this shit up? Are they holding short positions in RHAT?
Goodwill is the amount of money a company pays for another company, that is above the value of the tangible assets of the aquired company. This may include brand names, patents, and other intangibles. If a company buys a company that turns out to be overpriced later on, then the buying company will have lots and lots of goodwill that must eventually be charged against earnings.
Red Hat did not lose those large amounts of "real assets", rather, almost all of that "loss" was a write down of goodwill from previous aqusitions.
Look at it this way.
1) RHAT IPOs
2) RHAT stock becomes grossly overvalued
3) RHAT makes a secondary offering, cashing in on their grossly overvalued stock in a big way.
4) RHAT goes on a buying spree, spending their money that they got for free, buying companies like Cygnus.
5) Cygnus was also pretty overvalued, so a lot of goodwill ends up in the "assets" column of RHATs balance sheet.
6) RHAT has to write off chunks of this goodwill against earnings later on.
The key is that RHAT got this money for free. Had they not made the secondary offering, they wouldn't have had the money to make the aqusitions in the first place. Sure, that money ultimately came from idiot investors that paid $200 a share for RHAT, but it didn't come from any direct business or financing activities that had an opportunity cost for RHAT (such as debt financing).
So no, they aren't losing those staggering numbers each quarter, in fact they are breaking even for the last 3 quarters or so.
Goowill can be abused. "One-time-charges" can be abused (see Cisco writing off billions of real, tangible, inventory).... but in this case... there is no money lost, just worthless monopoly money that no longer exists, and hasn't existed for years, subtracted from a column on a balance sheet.
I've had enough abrasive sigs. Kittens are cute and fuzzy.
I work for an (open source technologies) embedded development consultancy company. The only thing limiting our growth is finding competent personnel. Demand exceeds what we can deliver by a large factor. Linux has taken the embedded development world like a tornado grabbing a trailer. I see no bubble building up here.
Of course, other companies may have been less realistic in their growth perspectives and may have had more venture capital to burn.
In making a business plan, you will need to figure out what your differentiators and profit centers will be. It's obviously not going to be software sales - the folks who tried a royalty-based embedded system based on Linux went out of business faster, because they had free competition. In general it will be consulting services, and this is going to be a difficult business in a slow economy as businesses will try to do more with their own engineers. Businesses also have an incentive to use their own engineers for embedded work, as they don't want to be in the situation of losing the recipie for one of their own products. That can happen more easily when an outside vendor does the work.
I created the user-mode half of most Linux embedded systems - a program called busybox. It's everywhere. I used the GPL. Because of that decision, the person who put the most effort into maintaining that program, after me, is still working on it and is able to offer his consulting services on it. Had I not used the GPL, he would have had to give it up when his previous employer was one of those shaken out. I have a lot more sympathy for him than the employer. Also, had I used a license other than the GPL, the program would not have become an open standard for embedded - everyone would have been making their own proprietary additions rather than cooperating. And I didn't care that companies could not lock in a revenue capture on busybox - why should I?
I think Debian has the best "business plan" of any Linux distribution: don't even try to make money. The people who use Debian as a cost center (HP, for example) pay for its development, and they are very clear about what their profit centers are. This is why I think Debian will eventually end up on top.
Bruce
Bruce Perens.