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VA Linux flees hardware
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June 27, 2001: 4:56 p.m. ET
Company will stop selling systems and focus on software, services
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NEW YORK (CNNfn) - VA Linux, a technology firm that specializes in the Linux operating system, said Wednesday it will stop selling computer hardware and focus instead on application software and will lay off an additional 150 of its 436 total employees.
The Fremont, Calif.-based company, which currently sells hardware, software and attendant services for systems based on Linux, said it will continue to accept hardware orders until July 10, 2001, with the goal of completing all deliveries by July 28, which is the end of its fiscal year.
The company, which went public in August 1999 in what at the time was a record-breaking IPO, said most of the job cuts, which represent roughly 35 percent of its remaining workforce, will occur during the current fiscal quarter. The remainder will take place over the next several months, as the company fulfills certain obligations to its customers, primarily in the area of hardware service and support, VA Linux said.
As have most high-tech firms, VA Linux (LNUX: Research, Estimates) has been stung by a sharp slowdown in corporate information technology (IT) spending, prompted in large part by a slowdown in the U.S. economy.
Compounding the problems its business faced as the economy cooled was VA Linux's historical focus on dot.coms.
Linux is an "open-source" operating system, which means the underlying code that makes it work is available for anyone to view and modify, as long as they share their modifications with the rest of the Linux community. It has been making headway in the computer networking market, especially among Internet companies who use it to run their Web servers.
Much of the company's early growth was fueled by the dot.com boom of the late 1990s, and the company recently has retrenched in the wake of the meltdown in that sector, aiming its sales at corporate enterprise customers.
When VA Linux reported its latest quarterly-earnings results, the company logged a wider-than-expected operating loss, set job cuts and named a new chief operating officer. The company also said it does not expect to turn a profit until October 2002, nine months later than it previously had expected.
In an interview with CNNfn.com in April, Larry Augustin, the company's chief executive, acknowledged the difficulties his company was having in light of the current market climate and its historical focus on dot.com but was nonetheless optimistic about the industry's adoption of the Linux operating system and the open-source computing model.
The most recent consensus estimate of analysts polled by earnings tracker First Call is for VA Linux to log a loss of 33 cents per share during the quarter ending in July. That compares with a loss of 10 cents per share during the same quarter a year ago.
VA Linux said its revenue will "significantly decline" under its new strategy because historically the company has generated the majority of its revenues from the sale of its computer hardware products.
The company said the changes would reduce its operating expenses and the amount of cash it needs to finance its operations. After the change, VA Linux said its cash-burn rate would be about $8 million per quarter and decline from there.
VA Linux said it expects to take a $10 million cash charge for the restructuring including the staff cuts, closure of facilities and asset write-offs.
Shares of VA Linux fell 3 cents to $3.26 on Nasdaq ahead of the news, which was released after the closing bell. They fell 3 cents to $3.23 in extended hours trade. 
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