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VA Linux Systems Opens at $300
Well, I'm going to drown in submissions if I don't post the news that VA Linux Systems opened at 299$ a share, which is some sort of record, I'm sure. You can check it's current trading level as well, albeit with a twenty-minute delay. Congrats to all involved.
As you can expect, the underwriters are very busy taking and making confirmation calls. Don't worry about it, everyone will be contacted and every voice mail will be returned. we have 40 people on the phones at DBAB and they are all working as fast as they can.
If you are -hyper- paranoid about not getting through with your confirmation, feel free to email me at chris@valinux.com and I'll forward on your confirmation (if you are in the program only, of course) and answer any questions you might have.
Thanks!
Chris DiBona
--
Grant Chair, Linux Int.
VP, SVLUG
Co-Editor, Open Sources
Open Source Program Manager, Google, Inc.
It's my opinion that the VA Linux stock
is terribly overpriced. The fact is,
VA Linux is in a very competative marketplace
and their competitors (IBM, Dell, Compaq,
Gateway, etc) are better poised to capture
the Linux server market, should they decide
to.
Let's look at what VA does:
1) They make Intel desktops and servers
2) They produce a value-added linux distribution
that's tuned for their equipment, which generally
consists of widely available PC hardware.
Now the problems with their business model:
1) Their Intel desktops and servers are hardly
unique or exceptional. Having hands-on
experience with VA Linux equipment as well
as Dell, Compaq, IBM, and Gateway equipment,
I can say that I think VA Linux has a long
way to go before they catch those guys when
it comes to the quality of their servers.
Desktops may be a different story because their
quality varies widely from producer to produce
and even within product lines. On average
though, I'm not impressed with the quality of VA Linux's server hardware.
Additionally, Dell and the other big boys buy
their hardware in much larger volumes than VA
does. VA cannot hope to compete with them on price any time soon. If you don't believe me, price out a
two CPU rackmount server from VA and then price
one of IBM's models out and see who comes in cheaper.
A lot cheaper.
2) Their value-added distribution is not that "value
added". Since their tweaks to the kernel are all
open-sourced before they are sold, they are openly
available to their competition. It would not be
that hard for one of the bigger vendors to put
together a server based on well-supported hardware
and acheive the same performance that VA is getting
out of their boxes. In fact, it has already
been done.
I can see one of the big vendors getting into the Linux
market "big time" within the next few months. Essentially,
all they would need to do was hire off some of the kernel
developers out there and financially back a major Linux
software project like KDE and they would already be ahead
of VA Linux. Remember, these large manufacturers are
buying their components in much larger volumes than VA
Linux and can blow VA out of the water on pricing.
In conclusion, I think VA Linux is a really great
company, boldly breaking into a wonderful new market
but they don't have the garaunteed market that stock
traders seem to think they have.
It's all going to go belly up some time in January or February.
:o/
Any dealer with a brain cell knows that certain sectors such as internet services and certain software stocks are massively overvalued. They also know that nobody is likely to bottle out just yet because, well, why should they? Thus they continue piling into hi-tech IPO's and anything with the trendy new open source label because they know from recent past experience that they'll make a quick killing.
At the same time they also know the market is expected to undergo occasional spontaneous corrections because it's chaotic and therefore unstable.
Brokers might be prepared to sail pretty close to the wire, but the key is to get out before everyone else does, so they're constantly sniffing for clues that the party is about to end. All it takes is for some news item to make a few dozen big brokers nervous at the same time, and they'll all start dumping stocks. And when one market starts this process, the others follow as the world turns.
Market falls are usually triggered by bad news of some global importance, but when stocks are overvalued it often appears that market reaction is still well out of proportion to the initial trigger. I'm thinking particularly of the 20% fall of the FTSE-100 (I think the Dow and the Hang Seng suffered about the same) during just a couple of days in 1998 because of a sudden loss of confidence. The real reason IMO was that a correction was simply overdue and somebody decided to get a head start on the others which got the ball rolling.
It's almost as if brokers in any given market share some sort of herd instinct. This is an inevitable aspect of the mediocrity of most dealers. Assuming that you don't know the market better than 90% of your fellows, the best way to keep your job is to be sure that you're doing what everyone else is doing even if it's against common sense. In other words, look out for trends and try to be one of the first to follow but don't get caught out there all by yourself. So they'll continue milking the cow for all it's worth until they begin to start feeling uncomfortable as the realisation slowly dawns that the cow they bought is little more than a mirage.
Surely many brokers must realise that time is almost upon them now. If so, many of them will be looking for a plausible excuse to switch strategy early next year. Of course they can't afford to just sell everything without good reason. But just about any bad news at all should provide a good enough excuse for the more cautious to ease themselves out of the game.
Fortunately for them, the media will be expecting a few Y2K glitches to hype up into front-page scare headlines. Now some minor Y2K cockups are inevitable even in those countries and corporations who dealt with the problem, and there are plenty of countries with significant economies who never really got it together. And our economies are all pretty tightly linked these days. So I believe those twitchy brokers will get their excuse.
When they do react, it won't go unnoticed. Trends are particularly easy to spot in electronic order driven markets, you just watch the online order book. So once people notice that the smart money is moving out, the trickle will rapidly become a flood.
I could be dead wrong about all of this but I feel it in my bones that a major market correction is on its way. I just hope the banks don't go down too like they did in 1929. If it's not just technology stocks but everything that's overvalued then we're in even bigger trouble. And that shortages stemming from interrupted supply lines (when producers and distribution companies find themselves paralysed by Y2K breakdowns) don't result in hyperinflation.
I'm certainly going to liquidate what stocks I have before the new year. The problem is, there's nowhere I can think of to put the proceeds that's immune to all of these risks
Consciousness is not what it thinks it is
Thought exists only as an abstraction
You don't need to be rich to get in on an IPO, of course it doesn't hurt.
Open an account at an online broker, I've got one at E*Trade, and every pay check put in a small percentage of your paycheck. When you put away money upfront its less painful then trying to come up with a wad of cash for the next big thing.
A money market account at E*Trade pays a pretty respectable interest rate. A lot better than my traditional bank and it has free checking. If I ever need to raid it I just write a check.
Write more window managers? Write more device drivers? Red Hat broke $200 in November but how much have we seen result from that? I'm still using Netscape 4 to read this and the same software I was using before the IPOs for all the networking. Red Hat still employes only 7 engineers. I still wouldn't dream of finding a job coding in Linux and the number of people wishing they could code Linux software for a living hasn't changed.
Shares will officially in your the account on tuesday, the settlement date.
You can sell now if you like. Settlement date doesn't change that. To sell, you call the number in your packet, ask to talk to a broker, get the broker's name, tell them your sell order. They will probably hang up on you at this point and will call you back with a confirmation. This is how brokers are. This may seem rude, but it's how thier line of work works.
At the end of the day (After 5 pst probably) everyone will get an email confirming the deposit of the shares in the account. If you do not geta confirmation email by say 10pm pst, you have my permission to flip out and email me spaztically :-)
Please read your Q&A again, the bulk of the people calling are asking questions already asked in thier forms. Please RTM, you'll make this so much easier if you do.
Again, if you have questions , etc, email me chris@valinux.com. I will forward these on to the underwriter.
You are wasting peoples time if you send mail to me and the broker mulitple times. We are receiving the email, I assure you. Everyone that comes in must be checked against the lists we have and that takes a little while.
Happy holidays.
Chris DiBona
--
Grant Chair, Linux Int.
VP, SVLUG
Co-Editor, Open Sources
Open Source Program Manager, Google, Inc.
Very cool. To commemorate their very successful IPO, VA has announced that they will build a limited edition system on par with their StartX ZP workstation called the Dutch Tulip ZP. In the release, VA says that the main difference will be that the limited edition DT ZP will be priced about thirty times what it's worth.
Maybe I can get VA to send me a test machine for a while? Cool stuff.
So let's see. VA's an Intel-based hardware company. They sell the usual ATX-case Celeron PCs, some decent workstation models, and some good-but-not-terribly-innovative servers in the 1-4 CPU range.
So all the excitement is over the fact that they do a good job of testing and preinstalling Linux on them? That they have a modest services operation that builds turnkey Beowulf clusters? That they employ a few prominent programmers, and do some of their own hardware R+D?
And once the Dells, IBMs, HPs and Compaqs of the world ramp up support and services organizations for Linux, where does that put VA? VA makes good, speedy machines, but customers that care most about speedy machines want a hardware vendor with a broad product line and a comprehensive support solution. Supporting only one OS on Intel hardware is a bit archaic these days, and VA's 4-CPU top-of-the-line makes them no more a threat to Compaq in the Fortune 500 than Dell is.
By comparison, Cobalt is a more rational investment. They picked a couple of vertical applications and homed in on them hard.
Let me give you an idea of how ridiculous it really is.
:)
Right now, VA Linux has approximately the same market cap of Amazon.com = $11 billion.
The reason I am going to talk about Amazon is because I recently ran a model on Amazon... but not on VA Linux.
Sales in 1998 for Amazon.com were $590 million.
VA Linux had $14 million.
For both companies, we can assume an operating margin (profit) of about 10% (Both are in highly competitive areas, with VA Linux having significantl higher barriers to entry). This will give us abou $40 million in net opertating income after taxes for Amazon.com (exluding startup costs). Assuming absolutely no growth out of Amazon.com, what would $40 million over the next 10 years be worth?
To get that number, we need a discount rate, or the cost of capital needed to generate those earnings. Because the stock is volatile, we assume a high cost... 15%.
Divide $40 million by 15% which gives us $270 million.
With no future growth, this is what Amazon.com would be worth ten years from now $270 million Which equals about $2.25 per share.
Obviously, investors are betting that Amazon *IS* going to be growing over the next ten years... but let's find out how much they are betting on ti growing:
Simply subtract $270 million from the current market market value ($11 billion), which gives us $10.7 billion roundly. How much do they need to grow? Well, by putting these numbers into our handy financial calculators we come up with an average annual return of 59.6% a year for ten years assuming margins of 10% and a 15% capital cost. Is this unrealistic? You bet.
Another way to look at it:
Barnes & Nobles and Borders together generate about $5.3 billion in sales with a scant 2% profit margin. People buying Amazon.com right now, are betting that they will completely run Brders and Barnes & Nobles out of business, as well as succesfully stealing a ton of market share from other business areas it is entering into.
Well, VA Linux generates even less revenue than Amazon.com... yet is valued just as high. Throw in increased pressure from IBM, Sun Microsystems, Compaq and Dell, and you are looking at a company with absolutely no room for error.
Good luck
Here's my main beef: there's no opportunity for anyone to profit from these stocks.
There is plenty of opportunities to profit from these stocks. Take a look at the Redhat charts and you will see that there has been lots of opportunity for an investor to make damn good money from Redhat even if you were not in on the initial IPO. In late Sept RHAT was around 60, and the same in late Nov. Now it's around 300.
The same has been true for Apple, Dell, AOL, Yahoo, Cisco, Microsoft and any of the technical stocks on the US market. I expect that VALinux will have its ups and downs too.
In any case the REAL way for an individual to make money in the stock market is not with IPOs or short term trading that is little more than gambling. It's to put your money into the market on a regular basis into a basket of good companies, and keep it there for 40 years. No other investment does better over the long haul. With dividend reinvestment you can count on doubling your money every 7 years or so. Over a 40 year working career that adds up to a VERY comfortable nest egg.
The traders that are playing games with VALinux today are not the fund managers - they are the day traders that are playing all sorts of momentum games. They will also be riding the stock on the way down, too. Right into the psycho ward, assuming they don't go postal first. When it bottoms out, the fund managers will start nibbling.
The good thing is that companies like VALinux can use this money to help build open source.
Oh well, at least I'm glad that I'm not a not a financial consultant or work for a brick-and-mortar investment firm. Their days are numbered.
I really disagree with this. As the boomers retire there is going to be a lot more need for intelligent asset management. Along with a variety of medical products, resort real estate and similar services for the old folks, it's the boomers that are and will continue to the largest force in the overall economy.
And then put QT under GPL, removing once and for all what may be the biggest question mark in the open source world.
Like all the other linux IPOs, VA needs to beef up its assets by acquisition before the blush fades. Troll Tech would be a high profile, community-oriented acquisition that would have the immediate effect of boosting VA's market capitalization yet further. This would be a far more satisfactory arrangement that, for example, Troll tech winding up as a division of Red Hat, which already has a lot of influence over Gnome. We have to watch out for too much concentration of power on the commercial Linux side, and we have to let our desires be known.
Corel should also be thinking about making this move.
Looking into my crystal ball, I see flocks of bankers bearing bags of money camping out on a certain doorstep in Norway...
Life's a bitch but somebody's gotta do it.