VA Linux Drops Hardware Division

The Linux company leaves behind a major revenue stream—and 153 employees—and decides to focus instead on software and services.

by Michael Singer of internetnews.com [June 28, 2001]

"Our differentiating strength has always been our software expertise."

VA Linux Systems (Nasdaq: LNUX) Wednesday announced it is getting out of the hardware business and instead focusing more on its Linux-based software and services.

The Fremont, Calif.-based company also said that 153 employees, or 35 percent of its workforce would be let go in the process.

"Our differentiating strength has always been our software expertise," says VA Linux CEO, Dr. Larry M. Augustin.

The news made such an impact that today's scheduled discussions by VA Linux executives at TECHXNY turned into no-shows.

The company says it will now move forward by focusing on three core areas: mostly on its SourceForge OnSite Collaborative Development System, but also on its OSDN and Linux Software Development and Consulting Services.

The majority of layoffs will occur during this 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.

Executives say the restructuring allows the company to improve cash flow and reduce a reported $8 million quarterly cash-burn-rate. VA Linux says it must still spend about $10 million on the adjustments before that happens though.

"I think this was a wise decision by VA Linux, the company really wasn't going anywhere with its hardware," says WR Hambrecht + Co analyst Prakesh Patel. "It was largely unsuccessful for them, but they still have their online properties."

Patel says this doesn't seem to be a blow to the overall Linux/Open Source community, however. Other companies, such as Red Hat are still making Linux-related products and there are still companies like IBM and Dell making high-end computers as well as several other smaller companies making "white boxes."

VA Linux, meantime, will keep its focus on the remaining Linux-related solutions in the company's arsenal.

• SourceForge OnSite Collaborative Development System VA says its primary focus will be on SourceForge OnSite. Installed behind corporate firewalls, the system lets large companies with distributed developers increase efficiencies in software development. 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 (Open Source Development Network) VA Linux plans to continue to operate OSDN with no significant changes. 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 The company says it will pursue development contracts in areas such as network-attached storage (NAS), remote management and other Internet software.

"With SourceForge OnSite as the core product in VA's new application software strategy, we will be better able to deliver our expertise in the areas where our customers have indicated that we add the most value," says Dr. Augustin.

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