VA Linux CEO Sees Profitability In Software - Eventually

VA Linux Systems CEO says the company can turn a profit by selling software, but not for several more quarters.
VA Linux Systems Inc. can turn a profit selling software, but it won't start booking revenue from those sales for several more quarters, says CEO Larry Augustin.

VA, once a high-flying stock, in late June exited its main business selling and installing servers running the Linux operating system. Augustin, who started the company in 1993 as a Stanford University graduate student, has said the company couldn't crack new accounts after dot-com customers such as eToys Inc. went out of business. Now, VA's trying to survive by selling software called SourceForge, which lets IT managers manage software development projects.

"We believe we have enough cash to get to profitability with this model," Augustin said in an interview at the LinuxWorld Conference & Expo in San Francisco this week. VA reported $82.9 million in cash and marketable securities on hand at the end of its fourth quarter ended July 28. The company lost $290.1 million during the quarter, on sales of $16 million, mostly due to goodwill write-downs and restructuring charges. VA says its first-quarter net loss will be $10 million to $13 million, on sales of $3 million to $4 million.

"People need to realize it's going to take a few quarters to get this whole thing ramped," Augustin says. "Our model's going to look a lot like a typical software company." VA has signed Agilent Technologies, Compaq, and The Goldman Sachs Group to contracts for SourceForge Enterprise Edition, priced at $600 to $1,600 annually per seat, plus installation charges. Hewlett-Packard has purchased a different edition of the product. But VA has booked "virtually no revenue" from these deferred contracts, and doesn't expect to for several more quarters. "We're looking at six- to nine-month sales cycles to close these contracts, if not more," says Augustin.

Augustin says he'll try to keep VA--which plans to change its name--afloat as an independent company, but will entertain buy-out offers if they help shareholders. VA's shareholders are hurting--the stock LNUX-Nasdaq closed Aug. 30 at $1.45, and has been trading below $5 since late May. Its 52-week high was $63.625.