Red Hat's red-hot shares doff their sky-high prices.

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What goes up ... Though it long looked as if it was defying the laws of gravity, the stock market has offered no better example of Newtonian physics than the performance of Red Hat Inc. shares. Soaring into the stratosphere after going public last year, the Durham-based software distributor's stock has spent most of this year falling back to earth.

On April 14, the day Wall Street's gutters ran red from the "tech-rection" that bloodied both little and big stocks, shares of Red Hat closed at $24.13 -- down 73% for the year, when Dow Jones' technology / software index was down only 24%. Blasting off after a barrage of national publicity, which portrayed the company as a David going up against Microsoft's Goliath, shares soared from a split-adjusted opening price of $20 in August to a peak of $151.31 in December.

Red Hat sells a version of Linux, a computer operating system that's available for free over the Internet. It aims to make much of its money selling support.

What has changed investors' minds since last year? David Soetebier, a senior analyst with Banc of America Capital Management Inc. in St. Louis, says they saw the flaw in Red Hat snagging a sizeable share of Microsoft's business. Companies, he notes, have invested too heavily in Windows-based systems to switch. Linux's main inroad has been running servers for Web sites. "A tech guy putting up a Web site, he doesn't need support," he says. "I've heard Linux has 20% to 30% market share on Web servers. That's millions of sites. But Microsoft and Intel will probably supply over 140 million PCs this year."

Pent-up demand for the stock initially boosted the price. As do many tech companies, Red Hat offered only a modest amount -- 6 million of its 66.8 million shares outstanding -- in its initial offering. Insiders unloaded big blocks in a secondary offering in February. Bob Young, co-founder and chairman, sold 321,502 shares. Marc Ewing, the other co-founder, let go 331,745. The biggest shareholder, Frank Batten Jr., who's also chairman of Norfolk-based Landmark Communications Inc., dumped 547,739. And CEO Matt Szulik, who had arrived less than a year earlier, jettisoned 38,826.

In March, Ewing registered with the Securities and Exchange Commission to sell 165,229 more shares, and IBM Corp., which besides making hardware and software invests in computer start-ups, registered to unload 750,000 shares.

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