MandrakeSoft springs back [LWN.net]

March 17, 2004

This article was contributed by Joe 'Zonker' Brockmeier.

When MandrakeSoft filed for the "declaration de cessation des paiements" (similar to Chapter 11 bankruptcy in the U.S.) on January 13, 2003, there was some concern about the future of MandrakeSoft and the Mandrake Linux distribution. A little more than a year later, the company and the distribution seem to be doing well. MandrakeSoft recently filed its "redressement judiciaire" plan to emerge from bankruptcy with the French courts, and its stock has already resumed trading on the Marché Libre. This seemed like a good time to ask MandrakeSoft co-founder Gaël Duval for an update on the company's health and its plans for the future.

The bankruptcy exit plan has not yet been approved, but Duval said that the company expects the plan will be approved before the end of March. The plan calls for MandrakeSoft to repay €4.1 million over 9 years from revenues, rather than borrowing the money to repay the debt. If the plan is approved before April 15, MandrakeSoft also stands to sell an additional 358,000 shares at €2.10 apiece, according to their shareholder newsletter.

What led up to the bankruptcy? Duval said that the main problem was that the company's expenses were too high, as opposed to unsuccessful products. He did single out MandrakeSoft's e-learning venture as an "unprofitable venture." What has the company done to improve its financial picture?

Since 2002 we worked hard to reduce expenses. This included closing some offices, be more careful about where money goes to, and unfortunately, reduce the number of employees...We had to re-center Mandrakesoft's strategy in line with its initial philosophy, which is building easy-to-use and friendly Linux products and making a business from these products.

After the layoffs, MandrakeSoft is now down to about 60 employees. There are still quite a few people backing the Mandrake Linux distribution, however. Duval noted that there are about 800 registered contributors for the Mandrake Linux Cooker, about 600 for the Cooker-i18n, and approximately 150 for Cooker-AMD64.

Duval said that the company has focused on products with better revenue potential, with an increased focus on sales directly through MandrakeSoft's online store rather than sales through distributors that take a larger cut of the profits. The company has also looked to the MandrakeClub, which now has nearly 20,000 subscribers. Duval also noted that MandrakeSoft, like other Linux distributors, saw a marked decline in sales of boxed product as high-speed Internet connections became more common.

MandrakeSoft has also been working on "OEM activities," with companies like HP. HP has been offering Mandrake Linux on PCs for some time, and the company recently rolled out new PC models with Mandrake Linux. Duval didn't provide specifics on the deal with HP, but said that it provides a "good income" for the company.

For the first time since its 1998/1999 fiscal year, the company can claim a "good income." MandrakeSoft's revenues have increased by 8.4 percent since the first quarter of the last fiscal year. The total revenues for the first quarter total €1,421,000 , with a net profit of €271,000. MandrakeSoft's results might have looked even better if the dollar had held its value against the Euro. MandrakeSoft reports its financial results in Euros, but most of its income is in dollars. Currently, the dollar is worth about €0.82.

As the company heads toward its exit from bankruptcy, Duval says it they plans to "reinforce" its business offerings. Duval said that the company's Multi-Network Firewall and Corporate Server products are doing well, and that MandrakeSoft is planning to launch a new version of the Corporate Server product soon. The company is also planning to introduce a Corporate Desktop product in the near future.

There may be some growth in the near future as well. Duval noted that MandrakeSoft is planning "a few mergers, small ones to begin." Specific merger targets were not mentioned.

Though there is no shortage of Linux distributions on the market, it's good to see MandrakeSoft making a healthy recovery. The company's return to profitability, without abandoning its commitment to free software, demonstrates that there is indeed money in free software for those who find the right formula.

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