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"Show me a thoroughly satisfied man and I will show you a failure." -- Thomas Edison

BREAKFAST WITH THE FOOL
VA Linux Grows Revenue, Reduces Losses

By Chris Rugaber (TMF RFK)
August 24, 2000

Computer server company VA Linux (Nasdaq: LNUX) jumped in after-hours trading last night after reporting a smaller-than-expected loss in its fiscal fourth quarter. Excluding non-cash charges, the company lost $0.10 per share, five cents ahead of consensus analysts' estimates of a $0.15 per share loss. Including amortization and other non-cash charges, losses were $1.15 per share.

The company, which sells computer servers with Linux operating systems and other software, posted strong revenue gains for the quarter and fiscal year 2000. Fourth-quarter revenues reached $50.7 million, 547% higher than the year-earlier period, while fiscal 2000 revenues were $120.3 million, 579% above last year's $17.7 million. As a result of large amortization costs resulting from several acquisitions and other charges, the company's losses reached $47.5 million for the fourth quarter and $96.7 million for the year.

"We have continued to demonstrate, quarter after quarter, strong revenue growth and improved financial results," said Dr. Larry Augustin, the company's CEO, in a press release. "We improved our gross margins to 22% and reduced our net loss, excluding non-cash charges, to 8.1% of revenue.... It is gratifying to see the positive response our products and services have received in the Internet infrastructure market."

While the company's sixfold revenue growth is impressive, VA Linux has had to deal with high expectations since its shares jumped 700% on the company's first day of trading last winter. Ever since then, it's been a steady downhill ride for the company and its shareholders. Nevertheless, demand is strong for its Linux servers, and the company announced that it may make additional acquisitions to expand its professional and consulting services business. Excluding acquisition costs, the company expects to be profitable by the end of 2001.

News to Go

The remaining 35,000 workers on strike against Verizon (NYSE: VZ) settled with the company last night, ending the 18-day walkout. According to The Wall Street Journal, the two sides reached a pact "almost identical" to the one the company signed with the 52,000 workers, mainly in the Northeast, who returned to work earlier this week. Verizon said it would take up to a month to deal with 60,000 outstanding repair requests and 200,000 orders for new service. "We're all glad this is finished," a Verizon spokesman told the Journal.

Devon Energy Corp. (Nasdaq: DVN) traded up almost $6, or about 9.6%, in after-hours trading on the news that it will replace the Great Atlantic & Pacific Tea Company (NYSE: GAP) in the S&P 500 Index. Western Resources (NYSE: WR) will replace Devon in the S&P MidCap 400.

Medicis Pharmaceutical Corporation (NYSE: MRX) beat analysts' estimates by a penny when it reported fourth-quarter earnings after the market close last night. Net income for the quarter reached $11.8 million, or $0.38 per share, ahead of $0.37 per share estimates. Revenue clocked in at $39 million, 21% above last year's fourth-quarter revenue of $32.1 million. Fiscal 2000 earnings reached $43 million, or $1.41 per share. The company traded up $2 yesterday, to $60.

Ex-Oracle (Nasdaq: ORCL) executive Ray Lane has joined venerable venture capital firm Kleiner Perkins, and has taken some parting shots at his former employer, according to a Wall Street Journal report this morning. Lane, the president and COO of Oracle until this June, "harshly criticized" Oracle CEO Larry Ellison, "making clear that his departure from Oracle wasn't amicable," according to the Journal.

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