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VA Linux to Cut Quarter of Workforce

Feb 20, 2001, 23:35 (19 Talkback[s])
(Other stories by SV.internet.com Staff)

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.