HP's Linux Sales Reach $2.5 Billion in 2003

In a somewhat uncharacteristic announcement about Linux, Hewlett-Packard (NYSE: HPQ) said its revenue from the open-source operating system and connected products and services hit record levels in 2003, earning the Palo Alto, California-based company US$2.5 billion, an increase of about a half-billion dollars from last year.

HP, which led the hot Linux server market in the results of the last quarterly research from IDC, said it is expanding its Linux portfolio with an announcement of new Linux reference architectures in its ProLiant and Integrity servers, new Linux clustering software for 64-bit Linux environments, and new Linux notebook and desktop computers.

IDC analyst Jean Bozman told LinuxInsider that HP, which led the Linux server sector with 28.1 percent share of a $743 million market in the third quarter of 2003, is succeeding at making money from other products and services that go along with Linux servers.

"You're really talking about solutions now and the total technology stack that goes along with a Linux server," Bozman said. "The Linux server is really a platform with revenue associated with it. It's related revenue built around servers."

Linux Profit and Products

Calling 2003 "a banner year for Linux at HP," the company said its Linux services and solutions business grew by 40 percent during the period.

HP also said its new Linux reference architectures -- created by integrating applications based on open-source software and HP's systems expertise -- will help mitigate business risk and improve support for mission-critical Linux deployments.

The company also will roll out new Compaq t5300 and t5500 diskless workstations that are used with the Linux Terminal Server Project (LTSP) technology and business notebooks that feature the SuSE Linux Desktop operating system. Lastly, HP said it will announce next month a high-availability clustering solution for 64-bit Linux environments.

"We have established HP as one of the world's preeminent Linux vendors and we anticipate continued growth in 2004, led by our dedication to meeting customer needs, industry-standard Linux platform leadership, a broad services portfolio and innovation such as Linux on notebooks and desktops," said HP vice president for Linux Martin Fink in a statement.

Quiet Commitment

While rival IBM (NYSE: IBM) has been loudest in promoting Linux, HP has remained more reserved but has displayed deep commitment to the open-source operating system, according to analysts.

"HP perhaps didn't come out with the clamor of marketing Linux, but quietly, behind the scenes, HP has been very aggressive with Linux," Yankee Group senior analyst Dana Gardner told LinuxInsider.

Gardner said one reason for HP's low profile when it comes to Linux might be the company's approach of selling enterprise software, including Windows, primarily from other vendors. While HP did see significant growth in its Windows business as well, Gardner said he still sees the company moving toward equal dedication to the different software.

"The numbers speak loudly enough, and I think HP will start to thread the balance between the supplying of various vendor-supported software and Linux," he noted.

Indemnity Gains?

HP's Fink also touted his company's position as the first major Linux vendor to initiate a Linux indemnity program. HP acted to indemnify its customers -- essentially shielding them from litigation -- in the face of copyright claims and legal threats from the SCO Group, which contends its source code was illegally used in the Linux operating system.

Gardner said it is too soon to tell whether HP's indemnification move -- emulated this week by Novell after completion of its SuSE Linux acquisition -- has won the company market share.

"At the same time, we're not seeing any trailing off of Linux sales in general," he added. "SCO is not having a trailing-off effect."

Open and Competitive

IDC's Bozman said HP's Linux revenue of $2.5 billion -- out of a total of $73.1 billion last year -- highlights the growing server market, where HP is in a fierce battle for the top spot with IBM and Dell (Nasdaq: DELL). However, the market for Windows servers is also growing, the analyst added.

"The whole [server] pie has gotten somewhat bigger both for Linux and for Windows," Bozman said. "HP is playing in all these markets."

For the Linux server market alone, Bozman said, technology buyers can look forward to reaping the benefits of the stiff competition.

"This is an open-system market -- it's highly competitive," Bozman said. "The customers really benefit because it's an open systems world. They can go find out what the offerings are and go with the configurations they want."