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VA Linux misses estimates, but sales surge

VA Linux (Nasdaq: LNUX) reported Thursday fiscal second quarter net loss of $11.5 million, or 50 cents a diluted share, on sales of $20.2 million.

VA Linux missed First Call consensus estimates that called for a loss of 21 cents a share.

In a statement, the company said it reported an operating loss of $8.4 million, excluding stock compensation charges. Based on a pro forma share count of 32.3 million shares, the operating loss comes out to be about 26 cents a share. On a basic and diluted share count of 23.3 million, VA Linux had an operating loss of 36 cents a shares.

The company also said its operating loss had $1 million in non-recurring non-cash charges associated with stock options issued for recruiting and marketing consulting services prior to its record-breaking IPO.

Backing that $1 million out, VA Linux would have missed estimates by about two pennies on the pro forma share count.

The sales figures are a lot less confusing. Sales of $20.2 million were up 537 percent from a year ago and 36 percent sequentially.

VA Linux, which primarily sells hardware based on the Linux operating system, said services revenue was $300,000, or 1.5 percent of total revenue. On a conference call, officials said the goal is to make services 10 percent of sales. The projection for the third quarter is that services sales will be about 5 percent of sales, said Todd Schull, chief financial officer, on a conference call.

The company's top 10 customers represented 41 percent of total revenue, down 9 percent previous quarter. VA Linux's largest customers for the second quarter were Akamai Technologies, NetLedger, Vstream, Abba Technologies, and CNet.

Margins improved to 14 percent for the second quarter, compared to 13.2 percent in the previous quarter.

VA Linux also noted that it eliminated its manufacturing inventory as it expanded its high velocity contract manufacturing model.

The company, which recently announced plans to acquire (Nasdaq: ANDN), said its SourceForge initiative has 13,000 registered developers. Web traffic on VA Linux' other web sites, such as and, grew 23 percent in pageviews sequentially. The company didn't provide raw figures.

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