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LynuxWorks files for an IPO

LynuxWorks files for its IPO. In what must have been a deliberate act of timing, LynuxWorks announced its initial public offering of stock just as LWN's Weekly Edition was about to go to "press." Thus, if this look at the offering seems more hurried than usual, it is...

The company's S-1 filing is even heftier than usual, weighing in at 2.7MB. We've plowed through it to get the highlights of this offering. As always, the IPO filing gives some interesting insights into what the company is up to.

LynuxWorks differs from many Linux companies in that it has been around and successful for a while - 12 years, in fact. The current name, however, has been in use for less than a year; they used to be called Lynx Real Time Systems (the original name, back in 1988, was Singh Lynx Corporation...). They have an impressive list of customers, including Boeing, Hewlett-Packard, Lucent Technologies, Marconi Communications, Motorola, NEC, United Defense and Xerox.

The company plans to raise $70 million in this offering. Unlike some other companies, they also have some reasonable revenues - $11 million in 1998, raising to $17 million for the year ending April 30, 2000. But, of course, they lose money - $8.6 million in that year ending in April. The loss figure grows tremendously (to $23.5 million) once you figure in the acquisition of Integrated Software and Devices (ISDCorp), which is still in the works. They have some $31 million in the bank. The company figures that the proceeds of the offering are enough to keep them going for 12 months - not all that long, really.

The core of the business plan remains LynxOS - the company's long-standing, proprietary, real-time system. LynxOS has been recast as a "Linux-compatible" product. LynuxWorks also offers BlueCat Linux under the usual sort of Linux licensing, but they don't expect to make much money that way. The real hope is to "substantially increase" sales of LynxOS and related services. Linux is the loss leader.

The obligatory list of frightening risk factors is there; some highlights:

• The company has radically revised its business plan over the last year as it moved into the Linux market. So "we believe that our historical financial results are not indicative of our future performance, and provide little or no basis upon which to evaluate our business prospects."

• Part of this business plan assumes that companies that originally were interested in BlueCat Linux will instead buy the proprietary LynxOS system. The risk, of course, is that this idea is rather, um, untested.

• They may not be able to increase acceptance of BlueCat Linux, which "to date has been acquired by only a limited number of customers."

• To the extent that BlueCat is adopted, it could cannibalize sales of LynxOS rather than help them. BlueCat Linux is royalty-free, which is not the case with LynxOS.

• "We know of no company that has built a profitable business based wholly or largely on open source software."

• They run the risk of alienating the free software community by selling proprietary products. Parts of LynxOS (real-time event handling) are covered by software patents as well.

The company currently earns about 2/3 of its revenue from licensing fees, and 1/3 from services.

As mentioned above, LynxOS has a patented event handling mechanism. There are a couple of other patents of interest:

We have developed a patented technology that enables LynxOS to be configured to leave out portions of the operating system not required for a given application, thereby reducing the amount of memory used.

[...]

In addition, we have filed a patent that covers technology that allows the developer to extend the functionality of the LynxOS kernel without modifying the source code by adding modules for new functionality.

This sure sounds a lot like the loadable module scheme used by Linux, and many other systems as well.

You may be a LynxOS user without knowing it - the system is used in HP printers and Xerox copiers.

Size: the company has 202 employees. There's 72 in sales and marketing, 45 in research and development, 58 in customer support and other services, and 27 general and administrative.

The leader of the company is Inder Singh, a well known real time figure. He was the founder of Excelan as well. Mr. Singh has borrowed a substantial amount of money from the company over the years - his indebtedness is over $1 million. That money was evidently used to buy stock in the company.

The current ownership of the company (big stockholders) is:

It is, of course, a tough time to be in the equity markets. LynuxWorks may need a bit of luck to get this offering out the door; clearly they must feel optimistic about the prospects, or they would not have filed. Perhaps the Linux IPO market will start to open up again.