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Commentary: VA bucking odds in hardware market

The Linux hardware seller has an interesting strategy, and its financial grounding in computer hardware sales makes it stand out among the pure Linux companies.

    Linux hardware seller VA Linux has an interesting strategy, and its financial grounding in computer hardware sales makes it stand out among the pure Linux companies.

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    Whether VA can actually fulfill CEO Larry Augustin's promise of profits by the end of calendar 2001, however, is doubtful, even if the economy stays strong.

    Ultimately, VA has little to offer beyond lower price to the wider market of corporate buyers looking for Linux Web servers. And the lower its prices, the less margin it makes and therefore the less likely it is to become profitable.

    Linux is finding a place in two markets. Corporations are using Linux for inexpensive Web servers and potentially may expand their Linux use to other non-critical applications.

    Today VA is growing on the basis of selling to Linux "true believers" that it has attracted with the help of its Web sites. That community requires only modest support and is a viable starting point. If VA is to sustain its growth, however, it must invest heavily in marketing and in building a channel, and those investments are likely to eat up any profits it may realize.

    The long-term problem for VA is that if the Linux market does develop quickly, major box sellers--primarily Dell Computer but also Compaq Computer and potentially IBM--will make a major push into that market. With their established channels into corporations, large resources, stability and well-developed support systems, they offer much more than VA can match.

    The only potential advantage VA has against these established players is that as a smaller, newer company with less overhead, it should be able to price its systems lower. If it is to grow, however, it must create a support infrastructure and, inevitably, a corporate structure, which will increase its costs even as it tries to compete against Dell. And Dell is an extremely efficient computer producer already selling Linux servers.

    Ultimately, VA does have a chance at survival and growth, but the hardware market is extremely hard to enter today, and it is fighting against the odds. Its best hope probably is to be acquired by an established server supplier looking for an entry into the Linux market, much as Sun Microsystems acquired Cobalt.

    Corporate users should consider VA along with other Linux hardware suppliers for non-critical applications such as Web servers, but ultimately the only thing VA may have to offer them is lower cost. Unless its price is significantly lower than Dell and Compaq, both of which are also selling low-end Linux servers, users should stick with the larger, more established companies that can provide support. If VA is much lower in price, companies might want to buy some of its boxes as throw-aways to put pressure on the larger competitors.

    Meta Group analysts William Zachmann, Jack Gold, Donald Carros, Peter Burris, Dale Kutnick, and David Cearley contributed to this article.

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