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.