Industry experts slam "mad" VA Linux valuation

Industry experts have labelled the $9.5bn market valuation of VA Linux as "mad."

The company broke Wall Street records last week when its share price shot up by 700 per cent in the first day of trading. The company floated for $30 per share, and ended the day at $242.

Hitesh Mehta, director of venture capitalist firm, Amadeus Capital Partners, found it difficult to believe that the company's advisers had it so wrong. "Either all those clever merchant bankers don't know what they're doing, or the market has gone mad," Mehta commented, and added the latter explanation is the most likely. He noted by way of comparison that the IPO makes VA Linux worth twice as much as British Airways. "They could buy BA and then a couple of other airlines, just to give themselves better global coverage," he suggested.

David Burman, director of research at the Butler Group, agreed, and added that he wouldn't bet against Windows 2000 and the more established Unix vendors retaining their market share. "Linux will have a place in the market, but I don't think this gain on a single day's trading is sustainable," he commented.

They both noted the need to distinguish between companies like Yahoo! - where they reckoned solid community potential almost justifies its £40bn valuation - and others that don't seem to have the business to back up the share price.

Linux fever has also seen shares in Red Hat rise from $14 to $286 since its Nasdaq debut in August. Andy Dickens, sales director at Red Hat Europe, warmly welcomed VA Linux's success.

"We think it legitimises the open source software movement," he said. "This gives consumers and enterprises a choice of a different operating system. For us, it's all about freedom of choice," he said.