March 26, 2001 10:00 AM PST

SuSE: Germany tops Linux market

HANOVER, Germany--German Linux seller SuSE expects to become profitable in 12 to 18 months, considerably later than U.S. rival Red Hat, but the company would much rather stay on its side of the Atlantic.

"The Linux market in Germany is so ahead of the U.S.," Chief Technology Officer Dirk Hohndel said in an interview during the CeBit trade show in Germany. "This is the best Linux market there is."

Though Hohndel didn't have statistics to back up his belief, he pointed to evidence such as Deutsche Telekom's use of SuSE Linux on an IBM mainframe, its subsidiary T-Online using hundreds of other SuSE servers, and other customers such as BMW and Daimler Chrysler.

SuSE's business in Germany has been focused much more on services such as customizing or installing Linux systems--an approach that flopped in the U.S, Hohndel said. SuSE laid off 30 people, two thirds of its U.S. workforce, in February.

It's been a tough time for most Linux companies, suffering from the fading glory of the technology market. Consolidation, layoffs, overhauled business plans, profitability delays and scrapped initial public offerings have afflicted the once-hyped area.

Hohndel acknowledged the environment is somewhat more difficult now, with some customers pushing back orders, but he argued growth is merely slowing, not disappearing.

Hohndel now is directly in charge of SuSE's U.S. business, which now will concentrate on retail sales rather than professional services, Hohndel said. SuSE's Holger Dyroff will lead the U.S. sales effort.

"We are basically going back a step in time," he said of the effort to increase SuSE's product sales. "We will be prepared to roll out a larger presence as soon as the market picks up on the services front."

SuSE is more content to stay closer to its geographical stronghold. About 75 percent of the company's 2000 revenue came from German-speaking countries, while roughly 15 percent came from elsewhere in Europe and the rest from North America, Hohndel said. SuSE isn't interested right now in attacking the Asian market, he added.

In contrast, Red Hat is doing fine in the United States and is boasting of winning German customers, such as Deutsche Telekom, Lufthansa and Dresdner Bank. On Thursday, the Durham, N.C.-based company reported break-even earnings per share, excluding one-time charges, while raising profitability targets for 2002. In February, Red Hat acquired consulting firm Planning Technologies, moving its business model a step closer to SuSE's.

Financial analysts, however, were not so optimistic and expressed concerns about slowing revenue growth.

Meanwhile, Caldera Systems, the other publicly traded Linux software company, is in the process of acquiring the Santa Cruz Operations' Unix software. Caldera had a net loss of $9.8 million for the quarter ended Jan. 31, while revenue increased to $1.1 million from $553,000 in the year-ago quarter, the company said in February.

Hohndel has several reasons for optimism. Among them is SuSE's work with IBM to bring Linux to IBM's mainframe computers. IBM likes Linux because it makes it easier to run software on all its numerous different server designs, and in the case of the z900 mainframe Linux carries many programs that otherwise wouldn't work on a mainframe.

Mainframe work will account for only 1 to 3 percent of SuSE's 2001, Hohndel said, but the portion is likely to jump to 5 to 10 percent in 2002, depending on how fast the sector evolves. Mainframe customers are extremely conservative and are likely to use Linux mostly in test projects for quite a while, he noted.

Hohndel also is looking forward to wider use of version 2.4 of the Linux kernel, the heart of the operating system, which got a major revamp this year.

Version 2.4 works well on eight-processor servers, he said, and he expects it to work on 16-processor machines not long after the end of the year. That's a more optimistic timetable than offered by some, such as IBM's Ian Miller, vice president of IBM's Intel server line, who said in an interview Thursday that he believes 2.4 currently is only practical for four-processor machines.

Going beyond 16 processors will require a major overhaul of the kernel, Hohndel said.

At a news conference Saturday, SuSE released a version of the operating system specifically designed for servers. Splitting the product line resembles the strategy of competitors Red Hat, Caldera and Turbolinux, who have different versions for desktop use and server use.

Because business customer don't like frequently changing software, the higher-end version will be updated only once a year, Hohndel said, compared to the three versions a year SuSE releases for the lower-end version.

The higher-end version includes a journaling file system--a technology used by competing high-end operating systems to make it easier to recover from crashes, Hohndel said at the news conference. It's also optimized for multiprocessor servers.

In another contrast with Red Hat, Hohndel believes Linux will be a strong contender in Microsoft's dominion--the desktop computer. "Everyone else is discounting the desktop, and I think they're so wrong," Hohndel said.

SuSE prefers the KDE desktop user interface to the competing Gnome software set by default with Red Hat. Hohndel predicted Gnome, while clever in some ways, was likely to lose out the same way the NeXT operating system failed to catch on.

Hohndel's company employs both Gnome and KDE programmers, but he bemoaned the fact that several efforts to unite the two groups have been unsuccessful because of "religious" differences.

 

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