VA Linux beats 3Q forecasts, bullish
on future
By Sergio G. Non ZDII
VA Linux Systems (Nasdaq: LNUX) lost far less than
analysts expected in the third quarter.
After market close Tuesday, the maker of servers
running the Linux operating system reported a fiscal
third quarter net loss of $4.5 million, or 13 cents per
share, excluding non-cash items. First Call's survey of
four analysts predicted a loss of 23 cents per share.
Including pre-tax charges of $10.2 million in
amortization related to stock options, $1.9 million in
goodwill writedowns and $4 million to write-off acquired
in-process R&D, VA Linux lost $20.6 million, or 58
cents per share.
Third quarter revenue increased to $34.6 million, up 710
percent year-over-year and up 71 percent sequentially.
Revenue was also well above analysts' expectations.
Gross margins rose to 17.8 percent from 14 percent in
the third quarter.
The company reported unit growth more than nine times
the market growth rate estimated by International Data
Corp, which saw the Linux server market expand 166
percent year-over-year.
Services revenue increased to $1.5 million, up 379
percent sequentially.
Officials were optimistic about the outlook and touted
the company's multi-tiered business model, which
includes hardware, software, services and open source
Web properties. Because of a growing services
business, VA Linux said margins will improve
sequentially with a long range goal of about 30 percent
to 40 percent.
VA Linux financial chief Todd Schull said 60 percent of
sales were from repeat customers. The company said
Akamai (Nasdaq: AKAM) was accounted for 20 percent
of sales with Deja.com and DoubleClick (Nasdaq:
DCLK) also headlining the customer list.
"We are seeing significant repeat business," said
Augustin, on a conference call with analysts. Augustin
said the company can grow as long as the Internet
grows. VA Linux customers create an annuity-like
revenue stream as traffic surges.
Schull said the company will continue to grow at its
current clip "at least for the next couple quarters."
"We also see opportunity as the brick-and-mortar
companies move out to the Internet," Augustin said.
Also Thursday, VA Linux said it expects to complete is
acquisition of Andover.net (Nasdaq: ANDN) by
mid-June. Officials said they didn't anticipate cost
savings from the combination.
Shares of VA Linux closed Tuesday's regular trading at
38 1/2, down 5 3/4 ahead of the quarterly report. Stocks
that rose on the Linux wave have fallen in recent
months, including Red Hat (Nasdaq: RHAT) and Corel
(Nasdaq: CORL).
As for competition from the likes of IBM (NYSE: IBM),
Dell (Nasdaq: DELL), Compaq (NYSE: CPQ) and
Hewlett-Packard (NYSE: HWP), Augustin said the
landscape hasn't changed much. "Jumping on the
bandwagon is not going to win in this market," he said.
Augustin also played down competiton from Microsoft
(Nasdaq: MSFT) and Sun Microsystems (Nasdaq:
SUNW).
VA Linux ended the quarter with $125 million in cash.
The company burned through $2 million in the quarter.
Larry Dignan contributed to this report.
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? Q&A: VA Linux CEO Larry Augustin |
