VA Linux Rockets 698%

VA Linux Systems blasted off with a staggering rise of 698 percent as the technology specialist set a new opening day record for initial public offerings Thursday.

The white-hot Silicon Valley firm closed at 239 1/4, an eightfold gain over its offering price of $30 per share, on volume of 7.8 million shares.

The stock opened at more than 10 times its $30 price at 320 and then held on to most of its gains through the final trades of the blistering session.

"I think the word 'monster' comes to mind," said Mark Specker, analyst with SoundView. "Wall Street believes the market for single-purpose applications based on Linux is very large."

He predicted other Linux players will speed up plans to go public.

"There are cycles where different things come into vogue in the IPO market, and right now it's Linux," said Steve Tuen, IPO Value Monitor's research director. "Some of these seem to have a life of their own."

VA Linux Systems took over the No. 1 spot as the biggest first-day performer of all time.

Until Thursday, the following IPOs occupied the top five spots, as recorded by CommScan Analytics:

• Theglobe.com debuted Nov. 13, 1998, with a gain of 606 percent.
• Foundry Networks in a Sept. 28 IPO showed a 525 percent gain.
• Cobalt Networks had a first-day jump of 482 percent on Nov. 5.
• MarketWatch.com, publisher of the CBS.MarketWatch.com financial-news site, had a run-up of 474 percent on Jan. 15.
• Akamai Technologies rose 458 percent on Oct. 29.

Indications of VA Linux's immense strength came in the last three days when it nearly tripled its projected range from its $11-to-$13 level. It first jacked up its pricing estimate to $21 to $23, and then a second time to $28 to $30 as investors piled on.

VA Linux Systems is the third stock to see a huge run-up in its estimated price range this week, following the example of Agency.com and FreeMarkets .

Linux is an open-source operating system often used in Web servers. It's seen as faster and cheaper than Microsoft's Windows NT. VA Linux is certainly capitalizing on the belief that Linux can compete effectively against Microsoft's widely adopted offerings.

The Sunnyvale, Calif., hardware maker is following in the high-flying path of software maker Red Hat. Red Hat debuted Aug. 11 at $14 per share and has since zoomed to 283.

"The future of the industry looks very bright," Red Hat Chairman Bob Young told CBS MarketWatch. "The investment community is recognizing this. VA Linux is a great hardware story against proprietary Unix vendors such as Sun Microsystems, Hewlett-Packard and Silicon Graphics."

VA Linux Systems' revenue has ballooned to $17.7 million in 1999, up from $5.6 million in 1998; its customer base surged to 1,100 from 550 in the same period. Backers include Sequoia Capital and Intel.

Written by STEVE GELSI