VA Linux Posts Strong Quarter

Linux systems vendor VA Linux Systems Inc. in Sunnyvale, Calif., made a strong showing in its fiscal fourth quarter. Revenue, at US$50.7 million, was up 547 percent compared with last year.

Analysts were impressed by the results. "They blew away our numbers," said Prakesh Patel, an analyst at W. R. Hambrecht & Co. in San Francisco. Patel had expected the company to post $42.3 million in sales. Net losses amounted to $47 million. Excluding acquisition-related costs and other noncash expenses, the company lost 10 cents per share, a nickel better than analysts had estimated.

One customer, Akamai Technologies Inc., represented 21 percent of revenue.

In a conference call Wednesday, President and CEO Larry Augustin said the company expected revenue in 2001 to be 2.5 to 2.7 times greater than this year's $120.3 million. Executives pointed out that they had shrunk losses and improved gross margins in every successive quarter this year.

Keith Bachman, an analyst at ABN Amro in San Francisco, said he was impressed most by VA Linux's growing gross profit margin. Gross margins were 22 percent for the quarter.

In recent quarters, VA Linux has increasingly focused on its Web properties, attracting a growing portion of the Linux and open-source software development activity. VA Linux claimed that 76 percent of the world's open-source software projects are now hosted on its SourceForge service. Earlier this month, the company launched the Open Source Development Network (OSDN), which aims to be a central resource for developing, distributing and discussing open-source software. OSDN includes Web sites that VA Linux obtained in its acquisition of Andover.Net earlier this year.

VA Linux also recently introduced its Build-to-Order Software Selector, an online service that lets customers select the software components they want preinstalled on their servers (see story). The company has also been building its professional services operation. "They're doing so many things at the same time, and they keep contributing things to open source, yet somehow they manage to pull it all together and make a business out of it," said Bill Claybrook, an analyst at Aberdeen Group Inc. in Boston. "I'm very impressed by that." While the company expands into other areas, it is facing increased competition in its core hardware business, with vendors including IBM and Dell Computer Corp. increasingly focusing on the Linux market. But Patel said VA Linux can maintain an advantage. "VA's value proposition is they create very optimized Linux systems," said Patel. "Dell's business model is different; they offer very generic systems."

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More about Aberdeen GroupABN AMRO MorgansAkamai TechnologiesAkamai TechnologiesAndover.netDell ComputerIBM AustraliaVa LinuxVA Linux Systems

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