VA Linux to Cut Quarter of Workforce

By SV.internet.com
Staff

VA Linux Systems came in two cents below Wall Street
estimates Tuesday, disclosing a pro forma net loss of 28 cents per
diluted share, or $13.4 million for the second quarter. The news
sent the company’s stock down to $5.75 in after-hours activity, and
included concurrent announcements that VA would be reducing its
workforce by 25% and had appointed a new president and COO to help
the company achieve profitability at lower revenue levels.

The stock closed at $7.25, down nearly 50 cents, in Tuesday
trading on the Nasdaq.

It’s a far cry from the VA’s glory days. The Fremont,
Calif.-based developer of Linux servers and workstations had the
biggest IPO in history in December 1999, soaring 698% in its first
trading day. But though it was a pioneer in its field, VA now
contends with the likes of Dell, IBM and Compaq for top spot among
providers of large-scale computer servers and workstations for the
Linux operating system. Cofounder and president Larry Augustin also
blames an overall economic slowdown on the company’s recent slump,
but he predicts the slowdown will ultimately create more demand for
Open Source technologies.

“We have recognized the need to adapt to this new economic
environment,” says Augustin, flatly. “But as [enterprise customers]
tighten their IT budgets, our leadership in Linux and Open Source
positions us to benefit from the adoption of open source
technologies by large corporations.”

Along with axing 139 of its 556 member workforce, VA also
appointed its senior VP and general manager, Ali Jenab, to the
president and COO position, a move Augustin (who remains as CEO)
says will allow him to focus on the strategic direction of the
company.

Augustin says he expects VA to reach profitability, excluding
non-cash charges, by October 2002.

“We have taken steps to significantly reduce our break-even
levels through our cost restructuring, as well as refocusing our
business on higher value-ad and higher margin products.” he says.
“The combination of those two will help us reduce our break-even
point significantly.”

Revenues for VA for the second quarter more than doubled, to
$42.5 million from $20.2 million, compared to the same quarter last
year. Previous forecasts for the company, however, were in the $43
million to $50 million range.