May 3, 2000 7:10 PM PDT

Troubled Linuxcare announces major layoffs

Linuxcare, the Linux start-up that in recent weeks has found itself swimming against a tide of trouble, laid off a number of employees today to cut expenses.

The layoffs come on the heels of a series of upheavals. In April, the company's chief executive and chief information officer abruptly resigned. Subsequently, the company announced it was postponing a planned initial public offering.

The layoffs affected all parts of the company except the core programming "gurus," Pat Lambs, head of the office of the chief executive, said in an interview today. No future layoffs are planned, she added.

The company wouldn't say how many lost their jobs, but sources familiar with today's action put the figure around 70. In December 1999, the company had 130 workers and planned to hire another 250 throughout 2000.

"We are ensuring that we have our bottom-line expenses in an area that the company is comfortable with," Lambs said. "The largest part of our expenses is head count."

Linuxcare filed for an IPO in January, but it's been a rocky road since. The company has been rocked by the departure of CEO Fernand Sarrat, the departure of chief information officer Doug Nassaur two weeks later, and now the layoffs. The company formally filed to withdraw its IPO, but Lambs said the company plans to file again when the market is better and a new chief executive has been hired.

Linuxcare had a net loss of $21 million on revenues of $3 million in 1999, the company said in Securities and Exchange Commission filings.

The departing employees will be in high demand. Several Linux companies are hiring as fast as they can to bolster services, sales, marketing, research and development, and other operations. And many established companies, such as IBM, are beefing up their own Linux operations. Even Microsoft has been hiring Linux experts to help it respond to the threat posed to its Windows operating system.

Linuxcare's search for a CEO and CIO are under way, though no interviews have been conducted, Lambs said. Kleiner Perkins Caufield & Byers, the venture capital firm that backed Linuxcare, has hired executive search firm Christian & Timbers to find a new CEO.

The troubles at Linuxcare reflect the flip side of today's aggressive high-tech climate. Waiting months or years for profitability--until 2002, in the case of Linuxcare's former IPO plans--has cooled many investors. And Linux companies, all the rage in 1999, are no longer assumed to be a quick path to wealth.

As part of the layoffs, Linuxcare is restructuring to emphasize where it believes future growth will be concentrated, Lambs said.

In the early days of Linux, the company's emphasis was telephone-based technical support, but in the future it will be on professional services, she said. For example, the company will continue its program of offering customized versions of Linux for companies that want to put their own brands on their Linux-powered products instead of displaying those of Red Hat, Caldera Systems, TurboLinux, SuSE or other Linux sellers.

Some believe Linuxcare is a candidate for acquisition--most likely by Red Hat or VA Linux Systems, both publicly traded companies that offer consulting services, technical support and other services beyond simply selling software or hardware.

Lambs wouldn't comment on whether the company is an acquisition target, saying only, "That type of potential always existed and still does exist."

For the time being, though, the company still plans an IPO. "The market needs to get much stabler. We need to have our CEO on board. Once those are (taken care of), we will figure out the right timing to do this," Lambs said.

Though Linuxcare will reduce its European and Japanese staff somewhat, the majority of the layoffs came from within Linuxcare's U.S. operations, Lambs said.

 

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