Corel licenses its Linux division

Canadian software maker Corel ended more than a year of speculation Wednesday by announcing it will spin off its Linux unit under the watch of a small startup, handing over the technologies behind its implementation of the open source operating system.

A newly-formed Ottawa, Canada-based company called Xandros Corp. signed a licensing agreement with Corel, which gives it access to Corel's Linux desktop operating system and related applications, the two companies said Wednesday. Xandros will pay Corel US$2 million in cash to use the operating system to create a line of desktop and server products.

The announcement came during the second day of the LinuxWorld Conference and Expo in San Francisco. Representatives from both companies discussed the licensing partnership at a press conference here.

Xandros is licensing Corel's Linux technologies with US$10 million in financing from Linux Global Partners, an investment firm that has its hands in a number of Linux desktop software startups. The New York-based firm's investment portfolio includes Ximian Inc., the maker of the GNOME desktop for Linux, and an open source project called GnuCash, which developed a financial software product for Linux.

Xandros will package a suite of desktop software products with Corel's Linux operating system to offer products that would compete against Microsoft Corp.'s Windows operating system, Xandros President Michael Bego said during the press conference. The company plans to sell a desktop Linux product through a subscription service and as a packaged product, he said. Microsoft controls about 95 percent of the desktop operating system market, and has overshadowed Linux desktop products that have entered the market, according to market researchers.

"We felt there was a ... need for a low-cost alternative to the Windows desktop," said William Roseman, co-chairman of Linux Global Partners.

The desktop software suite will include the yet-to-be released 3.0 Version of Corel's Linux operating system, office productivity applications, access to Internet service providers and other applications and plug-ins. The company also plans to offer technical consulting services and server software and corporate-computing products, Bego said.

Xandros plans to release the operating system with related applications sometime in 2002.

Corel said Wednesday it will receive a 5 percent equity stake in Xandros and a 2 percent equity stake in Linux Global Partners in addition to a cash infusion, under terms of the deal. Linux Global Partners will control the other 95 percent of the new company. Xandros will get unlimited rights to the Corel Linux desktop operating system and Linux applications for 18 months as well as access to Corel's sales and distribution partners and Linux customer base. The new company will also retain "the majority" of Corel's Linux developers, Bego said.

In January, Corel announced that it would restructure its business, signaling that it was looking to spin off its Linux operating system and take a financial interest in a new company to distribute the software. The announcement was part of a continued effort by Corel to revive its flagging business. In addition to a Linux operating system, Corel makes a Linux version of its flagship software products, WordPerfect and CorelDRAW.

"We recognized that Corel could not provide the focus to create an end-to-end Linux solution," said Rene Schmidt, Corel's chief technology officer, during the press conference. "We began looking for partners and at the same time we were approached by Linux Global Partners."

Microsoft has also aided in Corel's effort to rebuild, investing $135 million in Corel in October 2000. The two companies are working on Microsoft's Internet initiative, .Net.

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