IDC attributed the decline to the phasing-out of older network operating systems such as OS/2 from IBM Corp. IBM has said that it will end support of its aging OS/2 operating system after 2006, and has recommended that OS/2 customers migrate to Linux rather than Windows.
It is this support of Linux from large systems vendors, IBM in particular but also Hewlett-Packard Co. (HP) and Sun Microsystems Inc., that will propel Linux in the SOE market, as the large vendors have the capital and the will to refine the Linux software and market it, IDC said.
The report singled out The SCO Group Inc.'s copyright infringement lawsuit against IBM as "the only dark clouds on the Linux horizon," though IDC said it does not foresee the litigation as having the ability to cripple the Linux market as it currently stands.
"Even if the litigation is resolved, the incident may forever put to rest the notion that Linux is 'free' software that can be deployed on any machine without any accountability for ownership and licensing," IDC said in the report. "This weakens a major area of differentiation between Linux and more commercialized operating environments."
IDC predicted that the litigation "will be resolved in such a way that Linux can continue on in the current source tree." At worst, should a court side with SCO, "the offending code will be removed and replaced by the open source developer community without any significant setback in the functionality, reliability, and scalability of the Linux kernel."
IDC projected that Linux platform revenue will increase at more than four times the overall industry average for all platforms through 2007. In the SOE market, paid Linux OS software will comprise 32.3 percent of all server shipments by 2007, IDC forecasted, with 2.8 million new Linux paid SOEs being shipped each year.
Regardless of the market gains made by Linux, its revenue is dwarfed by Microsoft's earning power, IDC said. Microsoft generates about the same amount of OS revenue in three days as the entire Linux industry generates in one year, IDC said.
IDC is a division of International Data Group Inc., the parent company of IDG News Service. IDC said the research for the report was based on its standard methodology using data sources from hundreds of IDC interviews, product briefings, press releases, vendor financial statements and related filings.
The authors of the report, Al Gillen and Dan Kusnetzky, could not immediately be reached for comment.