VA LINUX SYSTEMS INC
8-K, EX-99.1, 2001-01-19
ELECTRONIC COMPUTERS
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                                                                    EXHIBIT 99.1

VA LINUX SYSTEMS UPDATES FINANCIAL GUIDANCE

FREMONT, Calif.--(BUSINESS WIRE)--Jan. 16, 2001--VA Linux Systems today
announced that it expects revenue for the second fiscal quarter, ended January
27, 2001, to be $43 million to $50 million, an increase of 115% to 150% from the
second quarter of fiscal 2000. It expects the loss for the quarter, excluding
non-cash charges, to be in the range of $0.28 to $0.24 per share.

"We are in the midst of an overall economic slowdown which is affecting all of
our sources of revenue, ranging from Linux servers to Web advertising banner
sales," said President and CEO Larry Augustin. "The fiscal second quarter has
traditionally been slow for us because of fewer selling days around the holiday
season. However, thus far in January we have not seen the acceleration of
business we normally see after the holidays. We believe the major contributing
factor is the overall economic slowdown. Given the slowdown, we now expect
revenue in fiscal 2001 to increase 60% over revenue for the previous year. This
is a reduction from the guidance given previously of 125% year-over-year
growth."

"Additionally, the current economic conditions are creating a difficult pricing
environment resulting in lower gross margins. Going forward in this economic
environment, we intend to focus on higher margin business and to manage expense
levels such that we can achieve profitability given our revised revenue
expectations."

Actual results will be announced on February 20, 2001 after the market closes,
followed by a 2:00 P.M. PST conference call.

About VA Linux Systems

VA Linux Systems (Nasdaq:LNUX - news) is the world's Linux leader. The expert
provider of Linux and Open Source solutions for the Web, VA Linux offers a
single point of contact for highly customized Linux servers and storage --
featuring the industry's first Build-to-Order Software -- as well as
professional consulting services and support. VA Linux Systems' mission is to
make its customers successful through the use of Linux and Open Source --
whether they are e-businesses rapidly expanding their Internet infrastructures,
or technology companies leveraging the power and methodology of Open Source
software development. As part of its commitment to expanding the Open Source
community, VA Linux Systems operates the Open Source Development Network
(OSDN(TM)). A network of the leading Internet sites for Open Source development,
distribution and discussion, OSDN includes SourceForge(TM), Freshmeat.net,
Slashdot.org and Linux.com. Founded in 1993 and headquartered in Fremont,
California with offices across North America, Europe and Japan, VA Linux is
located on the Web at www.valinux.com.

Note Regarding Forward-Looking Statements: This press release contains
forward-looking statements that involve risks and uncertainties, including
statements regarding anticipated actual financial performance and results of
operations for the Company's second fiscal quarter of 2001; future financial
performance and results of our operations; and the Company's sales strategy and

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anticipated benefits therefrom. Actual results may differ materially from those
expressed or implied in such forward-looking statements due to various factors,
including: confirmation of the Company's actual results for the second fiscal
quarter of 2001, including any accounting adjustments that may be required and
the risk that sales for the remainder of the Company's second fiscal quarter of
2001 may not meet the Company's expectations; VA Linux's quarterly sales cycle
and fluctuation in demand for our products and services, with increased
fluctuation due to VA Linux's concentration of customers in the Internet
infrastructure industry; competition with, and pricing pressures from, larger,
more established companies and smaller, general purpose manufacturers; the fact
that VA Linux has incurred and expects to continue to incur substantial losses;
VA Linux's reliance on sales of server products and its success in expanding its
services business; manufacturing and sourcing risks; the effectiveness of VA
Linux's ongoing business strategy; the rate of growth and acceptance of Linux
and the Open Source software development model; VA Linux's ability to continue
to introduce new products and services, and to expand its business and
operations, particularly internationally; VA Linux's dependence upon an Open
Source business model, independent third-party Linux developers, and its single
source contract manufacturer and suppliers; VA Linux's reliance upon strategic
relationships with other companies and its ability to negotiate and implement
specific terms relating to them; the scarcity of Linux-based applications; VA
Linux's dependence on its Internet-based businesses; the enforceability of the
GNU General Public License; VA Linux's ability to attract and retain qualified
personnel; VA Linux's acquisition strategy and its ability to successfully
integrate acquired companies into its operations; rapid technological and market
change; the impact of rapid evolution of the Linux market on our ability to
forecast demand and results; claims and potential damages resulting from
information or postings on Internet sites; and risks associated with the
Internet infrastructure and regulation. Investors should consult VA Linux's
filings with the Securities and Exchange Commission, including its Quarterly
Report on Form 10-Q for the quarter ended October 27, 2000, for further
information regarding these and the other risks of the Company's business. These
documents are available at the SEC Web site: www.sec.gov and www.freedgar.com.

Note to Editors: VA Linux Systems, VACM, OSDN and SourceForge are trademarks of
VA Linux Systems, Inc. Linux is a registered trademark of Linus Torvalds. All
other trademarks are property of their respective owners.



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