Corel’s Linux plans now in doubt

Suddenly, Corel Corp.’s attempt to become the next Linux powerhouse is up in the air.

Last month’s announcement that Corel’s planned acquisition of Inprise/Borland Corp. is being canceled puts a big wrench in the Ottawa-based software vendor’s strategy for turning itself into a dominant Linux vendor, some analysts said.

Corel’s low stock price-which drove Inprise/Borland to re-evaluate the now-scuttled merger-makes it hard for the company to afford any other acquisitions, said Stacy Quandt, an analyst at Giga Information Group Inc. in Cambridge, Mass. Corel also lacks reseller deals with big-name server vendors such as IBM Corp. and Dell Computer Corp. and faces strong competition from Linux rivals such as Red Hat Inc., Quandt said.

Michael Cowpland, Corel’s CEO, said during a conference call in May that the failed acquisition of Inprise/Borland was “disappointing.” But Cowpland said Corel will continue its push into the Linux market, and he stood by comments from February that the company could rake in up to US$30 million in Linux-related sales during its fiscal year that ends in November.

However, Corel will have to overcome its financial problems first. In April, after reporting a first-quarter loss of US$12.4 million, the company warned that it expected more losses during the next six months and said it could run short of cash by July.

John Blaine, Corel’s chief financial officer, said during the May conference call that the company is working out a cost-saving plan that would reduce its annual expenses by US$40 million. But Blaine repeatedly declined to specify where the savings would come from. He said only that Corel has “many offers, and we’re analyzing these on their own merit.”

Eric Klein, an analyst at Yankee Group Inc. in Boston, said Corel can still pin some hopes on the government’s antitrust case against Microsoft Corp. If Microsoft is split up, as the government has requested, that may enable Corel and other vendors to become bigger factors in the operating system business, Klein said.

Cowpland declined to specify why the Inprise/Borland deal was canceled, saying only that there were “many factors” involved in the decision.