VA Linux tops 4Q estimates on record sales

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VA Linux posted a smaller-than-expected loss in its fourth quarter Wednesday, losing $4 million, or 10 cents a share, on record sales of $50.7 million.

First Call Corp. consensus expected the maker of Linux-based operating system software to lose 15 cents a share in the quarter.

VA Linux (Nasdaq: LNUX) shares closed up 1 1/8 to 37 1/8 ahead of the earnings report. The stock moved up another 3 1/2 to 39 5/8 in after-hours trading.

The $50.7 million in sales marks a 547 percent improvement from the year-ago quarter when it lost $7.9 million, or 34 cents a share, on sales of $7.8 million. About 92 percent of VA Linux's sales came from sytems, mostly file servers, CFO Todd Schull said, during a conference call with analysts. The remainder of VA Linux's revenue was almost even divided between services and Web-related operations, Schull said.

"The result has been a great year and a great quarter, by any measure," president and CEO Larry Augustin told analysts.

The company eventually expects systems to generate about 75 percent of revenue, with services providing 15 percent and Web businesses 10 percent, Schull said.

Gross margin in the fourth quarter rose to 22 percent from 17.8 percent in the third, as VA Linux saw larger economies from scale, introduced new products and benefited from higher margins from the recently integrated Web operations. Gross margin will continue improving, but a more gradual pace, Schull said. The company's long-term goal for gross margin is 27 percent, he said.

Prakesh Patel, an analyst with W.R. Hambrecht, projected fourth quarter sales of $42.7 million.

VA Linux lost $4.5 million, or 13 cents a share, on sales of $34.6 million in its third quarter.

Earlier this week, Patel reiterated his "buy" recommendation on the stock.

"We feel the factors that will influence stock price performance include continued strong financial performance, improved gross margins, new and significant customer wins, and initiatives that further add scalable revenue opportunities," Patel wrote in a research note.

For the fiscal year, VA Linux lost $23 million, or 68 cents a share, on sales of $120.3 million. In fiscal 1999, it lost $12.2 million, or 85 cents a share, on sales of $17.7 million.

Patel was predicting fiscal 2000 sales of $112.3 million.

VA Linux shares have collapsed since peaking at an all-time high of 320 in December. The stock moved as low as 26 1/2 earlier this month before an upgrade sparked a modest recovery.

All six analysts tracking the stock rate it either a "buy" or "strong buy."

Analysts are forecasting a loss of 38 cents a share in fiscal 2001.