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VA Linux leaves the hardware field

Jun 27, 2001, 20:36 (34 Talkback[s])

PRESS RELEASE -- VA Linux Systems today outlined its new strategy focusing on application software, as well as significant restructuring steps designed to immediately improve cash flow and reduce operating losses.

As part of this strategy, VA Linux will exit the systems hardware business. Hardware orders will be accepted until July 10, 2001, with the goal of completing all deliveries by the end of the fiscal year, July 28, 2001. Staffing levels will be reduced by approximately 35 percent from the fiscal third quarter level of 436 employees. The majority of layoffs will occur during the current fiscal quarter, with the remainder over the next several months, as VA completes certain obligations to its customers, primarily in the area of hardware service and support.

Moving forward, VA Linux will focus on application software, providing customers with Linux, Open Source and collaborative development solutions.

The company will focus on three areas:

  • SourceForge OnSite Collaborative Development System (CDS). VA's primary focus will be on SourceForge OnSite. Installed behind corporate firewalls, SourceForge OnSite enables large companies with distributed developers to increase efficiencies in software development. When deployed as an Internet portal, SourceForge OnSite enables companies to build external developer communities around their technologies. OSDN's SourceForge.net is the largest reference implementation of SourceForge CDS technology, supporting more than 22,000 software projects and nearly 200,000 registered users. Over time, VA expects that SourceForge OnSite will generate the majority of its revenue, and have financial and operational characteristics typical of a software application company.
  • OSDN, the Open Source Development Network. VA Linux plans to continue to operate OSDN with no significant changes anticipated as the result of VA's restructuring. Featuring popular Internet sites such as SourceForge.net, Slashdot and ThinkGeek, OSDN is sponsored by leading technology companies, helping them to reach OSDN's more than 6 million unique visitors per month.
  • Linux Software Development and Consulting Services. VA Linux will opportunistically pursue development contracts in areas such as network-attached storage (NAS), remote management and other Internet software.

Financial Impact
The financial impact of the new VA Linux strategy will be significant. Historically, VA Linux has generated a significant majority of its revenues from the sale of its hardware products. VA expects its revenue to significantly decline with the elimination of the hardware segment.

As a result of this transition, VA expects large reductions in its operating expenses and use of cash (``cash burn'') in future periods. VA expects the post-transition cash burn rate to be approximately $8 million per quarter and to decline in subsequent quarters. VA Linux will take a charge in the current quarter to recognize substantially all related expenses, primarily in the areas of labor, facilities and asset write-offs. It is expected that the cash portion of this charge will be approximately $10 million.

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