Turbolinux turns profitable, looks to India

The company had lost money each year until last year

Turbolinux Inc. achieved profitability in Japan and China for the first time last year and is now looking to expand its operations in India, Mitsunobu Okada, the company's chief financial officer, said Wednesday.

Established during the Linux boom of the late 1990s, the company had lost money each year until last year. The improved performance was due to changes in the software environment and perception of Linux, and also changes in the company's strategy, said Okada.

A push by several governments around the world, including those of Japan and China, to encourage the use of open-source software has helped the credibility of Linux, he said. Turbolinux has benefited by winning contracts from the Chinese and Japanese governments.

In mid-2003, for example, it signed a deal with China's Ministry of Railways to provide operating systems and applications for the organization's package delivery system. Earlier in the year, it announced that two governmental organizations in Shanghai were using Turbolinux. In Japan, the company is working with a major corporation to roll out 300,000 Linux-based thin-client systems over the next five years.

Such contracts helped raise the profile of Turbolinux which led to further sales. The company was also helped by validation of its platform by vendors including IBM and Toshiba Corp.

There have also been some changes in usage that have broadened the operating system's appeal, Okada said.

During the original Linux boom, there wasn't enough big-name software for Linux, and driver support for common peripherals wasn't good. That's changed, Okada said. Software such as Real Player 10, Macromedia Flash player 7 and CyberLink's PowerDVD are all available for Turbolinux, and the operating system supports printers from Canon Inc. and Seiko Epson Corp., Japan's top two printer vendors.

The stage is now set for a second Linux boom, according to Okada.

Turbolinux has shifted some of its focus from the high-end server operating system market to mid- and low-end servers as well as desktops. The lower-end areas are seeing not only higher volume shipments but also the highest growth rates, said Okada. The low-end server market, for example, is estimated to have grown by 21% in the year from the second quarter of 2003.

In China, strong growth in the desktop Linux market helped Turbolinux gain market share last year, according to a report released in February by market analyst IDC China. The company's sales in this sector are all through PC manufacturing partners such as Acer, Hewlett-Packard Co. and IBM. Turbolinux's price is much higher than the competition, IDC noted.

Despite the higher price, Turbolinux shipped 449,000 units of its operating system in China in 2004, to rank second behind Red Flag Software Co.'s Red Flag Linux, according to IDC's estimates. That represents a 34% jump on 2003 and a 25% share of China's 1.8 million-unit Linux market. The company's revenue in China totaled $590,000, IDC said.

Turbolinux's Chinese operations are through a joint venture with the Ministry of Aerospace Industry.

IDC has not yet published equivalent figures for the Japanese market.

With the major hurdle of profitability behind it, Turbolinux is now looking to expand its Asian operations into a third major market and has selected India, said Okada. That's partly thanks to government support for open-source and Linux, which has already helped Turbolinux begin selling in India.

"We are already shipping [in India], but the problem is support," said Okada. Turbolinux is currently offered through a distributor in the country. The company plans to enlarge its presence there and send some of its own employees to India this year, he said.

"Since we have been doing well in Japan and China, if we have good performance in India, we can say we are the leader in Asia," said Okada.

Copyright © 2005 IDG Communications, Inc.

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