VA Linux issues profit warning

Fears that Linux software is not selling as well as expected hit Wall Street yesterday after VA Linux Systems said its first quarter profit would fall below expectations.

The distributor expects to report a loss of between 14 and 16 cents per share for its first fiscal quarter, which ended 27 October. A consensus of Wall Street analysts had expected a loss of nine cents a share. VA Linux blamed lacklustre sales to dotcoms.

Larry Augustin, chief executive at the company, said: "Although repeat business with our existing customers remains strong, sales to new customers in the dotcom sector were below our expectations. In particular, the number of customer opportunities from venture-funded dotcoms declined faster than anticipated."

The news caused shares in the distributor to plunge 42 per cent to $17.38 by the close of play on Monday, amid concerns that other players in the Linux market may be suffering the same problems. Shares in Red Hat fell by 7.7 per cent to close at $15.69.

VA Linux was riding high just 11 months ago when during a single day's trading, its shares rose from $30 to close at $239.25.

Although reality is sinking into the Linux world, there is still much interest in the open source operating environment and analysts believe that VA Linux's slowdown may be unique because the company particularly targets the dotcom sector.

Stacey Quandt, an analyst at researcher Giga Information Group, said: "There is a downturn in Linux deployment within dotcoms, and this is impacting VA Linux. But with IBM's recent deployment [of 15,200 Linux systems at a Japanese retailer], Linux continues to grow."

VA Linux is expected to announce its results on 16 November.