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Hard times at VA Linux Systems. It was only one year ago that VA Linux Systems announced that it would be purchasing Andover.Net. The deal was worth the better part of $1 billion in stock, with a nice $60 million cash payment tossed in as a sweetener (the cash portion was later removed). It must have felt nice to be able to do billion-dollar deals.
On February 20, VA Linux announced its second quarter results. They were not good. The company lost $0.28/share, right at the worst-case end of its (already lowered) estimates for the quarter. Revenues are up - $42.5 million - but expenses went up as well.
Even worse, though, is the projection for the next quarter. VA thinks that the downturn in the economy is going to hit it hard, to the point that revenue could fall below $30 million. As a result, profitability is not going to happen this year after all; the company now projects that it will become profitable in 2002.
When things turn bad, investors want to see some sort of action. VA has tried not to disappoint them; it has announced a number of management changes, including the appointment of Ali Jenab as president and chief operating officer. And, though this news evidently wasn't worthy of inclusion in the press releases, the company will be laying off 25% of its workforce, about 140 people.
As of this writing, VA's stock has dropped to the point that the entire company's market capitalization, including Andover.Net, is under $300 million. There will not be any more billion-dollar deals happening for a while.
What went wrong has been well analyzed elsewhere. VA is far too dependent on sales to dotcoms, and they are no longer buying. A year ago, when dotcom money was still raining from the sky, these customers were a form of lucrative low-hanging fruit. But the dotcom money is no more, and VA needs to find a different kind of customer.
VA, of course, is far from doomed. Much of what is happening here is part of the normal business cycle; anybody who has watched the technology sector for a while knows that these things happen. The value of Linux, however, is undiminished by an economic downturn, and there is much about VA which remains fundamentally good. As Eric Raymond wrote in his message entitled When times get hard:
And, as it says in large friendly letters on the back of the Hitchhiker's Guide, DON'T PANIC! What we're seeing now is entirely normal. It's the long, dizzy boom time that has just ended, all smiles and champagne and venture capital sloshing around looking for business plans, that has been exceptional. Business cycles happen, there are layoffs and retrenchments all over the economy -- and this, too, shall pass. Things will get better.
Just what form the layoffs will take remains unclear as of this writing. The cuts will be, evidently, "broad-based" and will include engineering staff. Some of them, certainly, will affect the many community resources that are sponsored by VA.
In particular, some people are already worrying about what will happen with SourceForge. This site, which hosts a vast number of development projects, can not be cheap to operate, and it is unlikely that banner ad revenues come close to covering those costs. Cuts at SourceForge could cause a drop in the quality of the service provided, and that, in turn, could cause projects to start looking for new homes.
VA has indicated, however, that it sees its SourceForge OnSite service (essentially a "rent-a-SourceForge" service for internal corporate development) as being an important component of its future, more profitable business. If that is the case, VA would be ill-advised to cut support for SourceForge at this point. And, in fact, this note on the SourceForge site tells us that "SourceForge is here to stay."
Nonetheless, the cuts at VA will certainly affect the larger free software community - if only because 140 people will become unemployed. 2001 looks like a hard year, and it's only February. But this, too, shall pass.
Maximum Linux shuts down. Imagine Media has shut down Maximum Linux magazine. The issue that is on the stands now will be the last.
Imagine Media's cutbacks include 5 titles besides Maximum Linux and are only a small part of cutbacks at The Future Network, Imagine Media's parent company. The Future Network is cutting a total of 20 "loss-making magazines", out of a total portfolio of 134 titles. Maximum Linux employed 4 people full-time along with many freelancers and part-timers, only a small part of the 350 people laid off by The Future Network (which currently employs about 2000 people).
Maximum Linux put out some good stuff in its short run; it will be missed. More information can be found in these articles at Newsforge and Binary Freedom as well as at The Future Network's home page.
ActiveState Programmers' Choice and Activators' Choice awards. ActiveState has rather belatedly sent us an announcement for its "Programmers' Choice and Activators' Choice Awards." They are looking for nominations of the people who have actively contributed to the success of Perl and Python. The the deadline was February 20, though...
IBM and Oki Data Team to Deliver Linux Printer Drivers. IBM's impact in the Linux arena continues to be felt as they jointly announced with Oki Data today the release of open sourced Linux drivers for over two dozen OKI Impact printers.
LinuxBIOS for Alpha. Linux NetworkX has released their LinuxBIOS for the Alpha platform.
Turbolinux announces Linuxcare acquisition, cancels IPO. It's official, finally: Turbolinux has announced that a "definitive agreement" has been reached in the acquisition of Linuxcare. Turbolinux's T. Paul Thomas will remain in charge of the new company, while Linuxcare's Art Tyde will become the CTO.
As was expected, Turbolinux is also withdrawing its IPO filing.
e-smith extends olive branch to Microsoft. In light of Microsoft's recent comments on the "un-American" nature of open source software, e-smith has put out a press release telling the proprietary software vendor not to worry. "[CEO Joseph] Morrison, whose company produces the world's leading open source server solution for small-business, said he can understand why Microsoft is afraid to compete with companies such as e-smith. e-smith's flagship software product, the Linux-based e-smith server and gateway, is not only faster to install and easier to use than Microsoft's Small Business Server, it is also far more reliable and cost-effective."
Linux Stock Index for February 15 to February 21, 2001
LSI at closing on February 15, 2001 ... 39.57
The high for the week was 39.57
Open Source ProductsUnless specified, license is unverified.
Proprietary Products for Linux
Products and Services Using Linux
Products with Linux Versions
Investments and Acquisitions
Section Editor: Rebecca Sobol.
February 22, 2001