VA Linux Disappointed with First-Quarter Revenues

By Carol King

VA Linux Systems’ (NASDAQ:LNUX)
stock price fell nearly 40 percent Monday following an announcement
regarding disappointing first-quarter revenues.

Although official results will not be revealed till November 16,
the company stated that first-quarter revenue is expected to grow
by 10 percent from the previous fiscal quarter and 275 percent from
the same quarter last year.

Monday’s numbers are pale in comparison to fiscal fourth-quarter
results, which showed record revenues of $50.7 million, an increase
of 547 percent compared to the same period of fiscal 1999 and an
increase of 46 percent compared to the prior fiscal quarter.

For the full fiscal year 2000, VA Linux revenues totaled $120.3
million, an increase of 579 percent over fiscal year 1999 revenues
of $17.7 million.

The provider of Linux and open-source solutions attributed the
revenue loss to lower-than-expected sales growth from new customers
in the dot-com sector as well as increased spending on higher
revenue expectations.

“Although repeat business with our existing customers remained
strong during the first fiscal quarter, the number of new customer
opportunities from venture-funded dot-coms declined faster than
anticipated, said Larry M. Augustin, CEO. “Going forward, we expect
to benefit from out strategy of pursuing a broader account base,
including business from large corporate and enterprise

“These customers require longer sales cycles, and we did not
receive a significant contribution to revenue from that sector in
the fiscal first quarter,” he said.

Augustin expects the company’s 2001 revenue to be about 2.25
times fiscal 2000 revenue. “This represents a reduction from the
previous guidance of 2.5 times fiscal 2000 revenue,” he said. “The
company still anticipates becoming profitable, excluding non-cash
charges, no later than the end of 2001.”

Today’s high for the Linux stock was $18.75. The company has a
52-week high price of $320 and a 52-week low of $17.06.

Since its founding in 1993, VA Linux has grown from 15 employees
to more than 400.

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