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IDC: Software Piracy Cost Developers $29 Billion in 2003

More than a third of the PC software in use around the world in 2003 was pirated, according to a new survey conducted by IDC for the Business Software Alliance. The survey found that 36 percent of software installed was an illegally made copy, costing developers $29 billion. While $80 billion in software was installed on computers worldwide last year, only $51 billion was legally purchased, the IDC found.

The IDC broke its findings down by geography, and, not surprisingly, the rate of software piracy was higher in developing markets. Leading the way for software pirates was Eastern Europe, where 71 percent of all PC software was pirated. Latin America and the Middle East and Africa followed, with 63 percent and 56 percent piracy rates respectively. Fifty-three percent of all software installed in Asia-Pacific last year was pirated, and only 36 percent Western Europe's software were illegal copies, although Western Europe cost developers the most, with a $9.6 billion loss due to piracy. If you live in North America, you can feel good knowing that only 23 percent of software here is pirated, and it cost developers only $7.2 billion, $300 million less than piracy cost developers in the Asia-Pacific region. IDC based its findings on 5,600 interviews in 15 countries.

Red Hat Linux Dominates Linux-Based Web Domains

In any event, according to surveys of Internet domains performed by Netcraft, the installed base of Linux domains on the Internet has continued to grow in the past six months, and Red Hat is still the dominant supplier of commercial Linux on the Internet, with 1.465 million active sites running on this distro. Red Hat's 10.1 percent growth in the past six months was slower than the aggregate Linux growth, however, and Red Hat's share dropped by 1 point to 49.8 percent. Sun Microsystems may have discontinued the Cobalt Linux server appliances, but they are still popular among ISPs and the number of active sites on these boxes continues to grow, with nearly 597,000 sites (up 13.3 percent) reporting that they are running on Cobalt Linux. The open source Debian distro is growing slightly faster, with its installed base of active sites up 14.5 percent in the past six months to 468,502 sites. Novell's SuSE Linux came in number four with 347,326 installations and a growth rate of 15.6 percent since January 2004. Mandrake Software had 37,186 active sites running on it in the Netcraft survey, up 15.3 percent. And the Gentoo distribution, which only a few months ago announced a new version, saw an increase in site count to 29,192, up a whopping 49.5 percent.

New Linux Distro: New Mexico's Santa Fe Linux

New Mexico Software is getting set to jump into the Linux distribution business as it readies Santa Fe Linux for launch on August 3. MNS, which is a public company that is traded on the Over The Counter (OTC) stock market, is based in Alburquerque, New Mexico. The company has a variety of document management and imaging programs that run on Linux, which is how NMS. This software collection, known as the Digital Filing Cabinet, are sold on a retail basis, bundled on a line of Toshiba servers, and under a hosting model as well.

Santa Fe is a desktop Linux variant that is based on the Debian implementation of Linux, which is not exactly known for being user friendly but which is nonetheless regarded as a top-notch implementation of Linux. NMS says that it will charge $39.95 for Santa Fe Linux, and that it is aiming to make Linux easier to install than other distros. The boxed set of the Linux software includes 60 precompiled applications and the source code as well. No word on when or if NMS will create a full-blown server version of Santa Fe Linux.

In addition to Santa Fe Linux, NMS is also readying a product called White Sands, which is a Windows version of its document management software aimed at small businesses and home offices that will sell for $239. NMS is also going to launch Taos, a digital photo archiving system that will sell for $99.

Linux Services Growing, But Dwarfed By Other Platforms in Europe

If you think services organizations are making big bucks peddling Linux services in Europe, you are apparently wrong. Thanks to the do-it-yourself nature of Linux and other open source software (perhaps it greatest blessing), according to statistics from IDC, European services companies will only be able to make about $98 million peddling services in 2004. (This number does not include the services costs associated with buying open source software from a commercial distributor.) That $98 million represents less than 1 percent of the services spend. However, by 2008, IDC expects the Linux services market in Europe will grow to $228 million by 2008, as companies that once required IT staff to support these programs will go to system integrators and free software specialists to get services for Linux and other open source programs.

IBM Boosts Earnings As Sales Come In a Bit Shy

Given the choice between having lower sales and higher profits or higher sales and lower profits, Wall Street would prefer that any vendor choose profits. And that is what IBM's new chief financial officer, Mark Loughridge, said Big Blue did in the second quarter. IBM reported revenues of $23.2 billion, up 7 percent compared with this time last year, and net earnings of just under $2 billion, up 16.6 percent.

Despite tough product transitions in the Power-based iSeries and pSeries server lines and stagnant software sales (like so many other software players in the second quarter), IBM had decent hardware sales and continues to wring costs out of all aspects of its businesses (particularly services) to drive profits. But IBM clearly has its eyes on turning its $1 billion investment in the consulting business of PricewaterhouseCoopers into a powerhouse. Loughridge finished his presentation to Wall Street analysts by reminding everyone that IBM is chasing after a market it calls Business Process Transformation Services (BPTS), which he said accounted for $1.4 billion in sales in the second quarter for IBM and which is growing at 40 percent. Strictly speaking, BPTS is only partially in the IT business, as it seeks to outsource business processes, engineer new systems, consult with customers on their business strategies, and monitor the performance of companies as they try to reach their goals. Taken to their extreme, the BPTS services that IBM wants to sell effectively turn Big Blue into a chief operating officer for hire.

But until BPTS grows to become the dominant service that IBM offers (if it ever does), IBM has to continue to generate sales and make money by pushing hardware, software, and more traditional services such as IT outsourcing, hosting, and systems integration.

In the second quarter, IBM's hardware sales were $7.42 billion, up 12 percent as reported and 10 percent at constant currency. (The weakness of the U.S. dollar hasn't helped IBM as much in hardware as it has in other units, it seems.) The Systems & Technology unit, IBM's main hardware group, which is comprised of the former Systems Group (which makes servers and storage) and Technology Group (which makes chips and used to make disks), had sales of $4.2 billion, according to Loughridge, and posted over $600 million in profits--about a third of IBM's total for the quarter. Those profits were unquestionably driven by strong sales of the company's zSeries mainframes, which posted a 44 percent gain in sales and a very high 75 percent gain in the aggregate MIPS shipped over the second quarter of 2003. Loughridge said that 70 percent of the MIPS shipped in the quarter were for new workloads, which means not traditional COBOL and CICS applications, and which increasingly means Linux-based infrastructure workloads that mainframe shops are consolidating from out in their networks back into their mainframes.

The iSeries line was hammered, with a 28 percent decline in sales, as customers more or less stopped buying iSeries machines as they awaited the Power5-based eServer i5 machines, which started shipping June 11. Sales of the i5 line were impacted at the high end, as customers awaited the new 16-way Model 570 machines announced on July 13. Loughridge said that while sales of older iSeries boxes were down substantially, i5 sales were on plan.

The pSeries Unix server line was just starting its transition to the Power5 machines on July 13, but sales were nonetheless down by 3 percent as some customers at the end of the quartered caught wind of the Power5 announcement and deferred acquisitions. Loughridge said that sales of high-end systems continued to grow "in the double digits," which stands to reason, since no one is expecting the 64-way "Squadron" Power5 servers until late September or early October.

When Apple reported its financial results yesterday, it zinged IBM yet again for not getting enough PowerPC 970 "G5" processors out the door from its 300 mm wafer chip plant in East Fishkill, New York. When questioned about this, Loughridge said that IBM had doubled the yield at the plant from the first to the second quarter, and was on its way to double the yield again in the third quarter. He said that the ramp curve at the chip plant was exactly what IBM had planned, albeit pushed out somewhere between one and two quarters. While Apple continues to complain about G5 supplies, Loughridge assured Wall Street and customers today by saying that IBM was not supply constrained for its own Power5 chips. He also said that he believed IBM is pretty much through the transition with the i5, having launched the Model 570s, and is well on its way with the eServer p5 machines.

The xSeries server sales, which use a mix of Intel and Advanced Micro Devices processors, were up 18 percent, with growth across the product line. Loughridge singled out IBM's BladeCenter blade servers, saying that these boxes were bringing some customers into the IBM fold for the first time. Storage sales were up 5 percent, with midrange disk arrays up 7 percent and low-cost FastT arrays growing by 36 percent. IBM's tape business grew by 13 percent, the fourth quarter of double-digit growth for this line. IBM's Personal Systems unit, which sells notebooks, PCs, workstations, and printers, booked sales of $3.2 billion, up 16 percent. IBM said that the unit was profitable, too, bringing $27 million to the bottom line.

Despite the mostly good news on hardware, software and services continue to be the twin engines of profit and revenue for Big Blue. Software sales were flat at $3.5 billion, with operating system sales down 2 percent at constant currency, thanks in large part to slumping iSeries sales. Middleware sales were flat, with sales of middleware on mainframe and iSeries systems up 2 percent and down 3 percent on Unix, Windows, and Linux systems. Sales were down a few points in IBM's Lotus, Tivoli, and Rational units, while WebSphere sales were up 2 percent. "Consistent with many of our pure-play competitors, we encountered a difficult sales environment," said Loughridge. "The number of large deals was down from the past quarters, and there were a significant number of deferrals at the end of the quarter." He said, however, that he believed the majority of those transactions remained opportunities for the third quarter.

The Global Services unit raked in $11.3 billion in sales during the second quarter, up 7 percent as reported, but only 2 percent at constant currency, reflecting the large amount of overseas sales this part of IBM has, and the weakness of the U.S. dollar in many foreign companies. IBM had $10.6 billion in new services signings in the quarter and increased its backlog to $118 billion. The signings were almost a carbon copy of the short-term and long-term signings that IBM had in the first quarter, and were down a bit from the second quarter of 2003. Loughridge said that IBM improved the gross profit margin across its services businesses by 7 percent in the quarter, and that every unit within Global Services contributed to profit improvement.

On a geographic basis, sales were up 2 percent in the Americas region to $9.7 billion. In the Europe/Middle East/Africa region, sales were also up 2 percent in local currencies, but when translated into dollars, back at IBM headquarters in Armonk, New York, EMEA sales were booked at $7.5 billion, up 7 percent. In the Asia/Pacific region, sales were up 13 percent as reported, to $5.2 billion (although up only 6 percent at constant currency). IBM's OEM sales, which are booked in dollars, were up 19 percent, to $701 million.

As for the future, Loughridge said that he did not expect anything different from what his predecessor as CFO, John Joyce, has been saying for several quarters. "We continue to see the IT industry growth around 4 to 5 percent, which is the best it has been since 2000. Customer spending continues to improve, though not uniformly across all segments and regions. This is nothing new. Demand is not entirely predictable or consistent, and it evolves with customer requirements."

SCO Pushes for More IBM Docs in Lawsuit Discovery

The SCO Group and IBM continue to battle it out in the Federal District court in Utah over IBM's alleged violation of SCO's Unix license and the alleged contribution of Unix intellectual property owned by SCO to the Linux community. SCO now wants IBM to fork over more documentation related to its activities in the open source Linux market. SCO also wants IBM to identify the employees and third parties that worked with the company on Linux projects so that SCO can depose them in the course of discovery.

SCO's lawyers argued that they would love to depose Linus Torvalds and other key Linux kernel contributors, and specifically said that they wanted to depose Dan Frye, the head of IBM's Linux Technology Center; Irving Wladawksy-Berger, IBM's vice president of strategy and the guy who got a $1 billion check in 2001 to build a Linux business for Big Blue; and Sam Palmisano, the current chairman and CEO of IBM, who made the decision to push for Linux in early 2000. SCO also wants to know who within IBM had access to AIX and Dynix/ptx source code and therefore had the opportunity to let that code loose, either wholly or in a modified (but legally derivative) form, into the Linux operating system, which SCO alleges has happened. IBM has supplied a list of some 7,200 Unix developers but has not told SCO who did what with what operating system. Obviously, SCO cannot depose 7,200 people. It will be interesting to see what the court does.

Why doesn't SCO just do a code comparison and be done with it? SCO contends that there are 4 million lines of code in the Linux 2.4 kernel and about 3.4 million lines of code in Unix System V. With AIX and Dynix/ptx having similar code bases (in terms of length), SCO contends that it would take 35 man-years to go through the code and look for copying from Unix into Linux. SCO wants to depose Linux experts inside and outside of IBM to get an idea of what portions of the code to look into, just to speed up the process.

Guild Companies Adds Google Search Service

In an effort to make the search capability of our Web site better, we have added a Google search engine feature to our Search page. For those of you who like the open source HT/DIG search engine we have been using until now, we have left it active. The "search" button (which is at the top of all e-mail newsletters and on all pages on the Guild Companies site) now also points to a Google search box, which can troll our site for tech tips, articles, and other material. We have implemented the Google search box so you can search the rest of the Web, if you have an inclination to do that while on our search page. All you have to do is click the radio button from "itjungle.com" to "Web" and you can search the Web from within our site. We hope you find these two search engines useful.