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VA Linux Systems Leaving The Hardware Business 281

Posted by CmdrTaco
from the official-word-from-from-higher-ups dept.
The subject pretty much says it. You can read the announcement over at Yahoo, but the short and long of it is that VA, the company that owns OSDN which owns Slashdot, Freshmeat, and assorted other Linux web sites, has announced that it is leaving the Hardware Business to focus on SourceForge OnSite, OSDN, and Linux development and consulting. Slashdot should be unaffected.Update: 06/27 08:43 PM by H :It's also relevant to point out this statement from Richard French, the General Manager of OSDN, which is a message to the Community.
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VA Announcement at 4:30

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  • by Anonymous Coward
    You know your business is in bad shape when you have to switch to being a pure dot-com in order to improve matters.
  • by Anonymous Coward
    The large vendors will always be lowest-cost providers of commodity hardware. If you don't have the lowest cost, you have to add value. If Linux now runs on most commodity hardware, and the large vendors will ship with Linux installed, where can VA add value?

    Rule #1: You cannot outrun the entire PC industry. You can be smart, and you can be cheap, but you can't be consistently smarter and cheaper than all the guys in Taiwan. If you have a specialized niche, you have to keep inovating in that niche and hope it doesn't become part of the PC mainstream. This is what ate SGI. It almost killed Apple. It might eventually bring down Sun.
  • Just because they're capable doesn't mean they don't have better things to do.

    Seems to me like this is a solid service that VA could make some money on. How much remains to be seen.

    ---
  • I used to work for a very legitimate consulting company that sold products for the AS/400.

    Sometimes people would need to get a new key for their software. That action took the administrative assistant a minute or two to do. Price to the customer? $100

    Businesses realize that people need things, even silly things, that they are in the best position to provide. If they can make a significant amount of revenue that way, why not? It can make their "main services" a bit less expensive.

    ---
  • I think I almost have to agree, even though I still own shares (the same @#$%# ones I got in the IPO and was too stupid to sell).

    I think SourceForge On-Site could be profitable, but only as a small business. VA should immediately get out of the Sillicon Valley area and take other measures to keep costs down. The revenue from it should be able to pay for a few people.

    The *best* thing they could do is get out of being a publicly traded company. I wonder if that's even possible (maybe only by declaring bankruptcy?). They few things it has left to sell do NOT justify having a stock on NASDAQ. If they could get out of that, and lay off the people that do everything the SEC requires, and return to being a SMALL business, I think they could make a decent living for themselves.


    ---
  • by Wakko Warner (324) on Wednesday June 27, 2001 @12:40PM (#124453) Homepage Journal
    We've decided to exit the volatile hardware industry to concentrate our efforts on the more stable "internet banner ad-funded website" industry.

    --

  • How can OSDN earn money ?
    Web banners ? Ad banners on Slashdot and Freshmeat are all for other OSDN services (valinux, sourceforge, thinkgeek or free software) .

    Well to be fair, Thinkgeek does make money off things other than ad banners.

    TIME TO SELL LOTS AND LOTS OF PENGUIN MINTS !!
  • This is an example of a niche Linux vendor, the kind where I said their business might support a dozen employees. If you bought a hundred machines from them they may be able to support a couple dozen employees (grin), but Dell definitely is not shuddering in their boots.

    -E

  • by Eric Green (627) on Wednesday June 27, 2001 @02:34PM (#124458) Homepage
    Unfortunately, the custom Linux server niche won't support any company with more than a dozen or so employees. Custom Linux server hardware is always more expensive than mass-produced hardware. But there will always be a market for it, because there will always be tasks that can't be accomplished with off-the-shelf hardware. Unfortunately, as VA found out, it isn't that big a market.

    Frankly, this announcement was inevitable. There is a limited market for custom servers, and VA Linux was never interested in building enough volume to be the Dell of Linux (i.e., provide lots of cost-effective hardware for low prices), they wanted to be the Sun of Linux (i.e, sell high end server products for high prices). The problem is that Linux does not lend itself to a Sun approach. People who want to buy Sun buy Sun, not VA Linux Systems. People paid the premium for VA Linux servers when the dot.com money was flowing, but now that it's not, they buy Dell. Or, if it's a higher end server, IBM. VA Linux just did not have the volume to sell at a competitive price, and this move is a recognition of that fact. Unless you are buying parts in lots of 10,000 nowdays, you just can't make money in the hardware business -- and even at those volumes, Dell, HP, and IBM are all having to tighten their belt buckles to make any money selling PC's.

    The wonder is that it has taken this long. I predicted this would happen back in March of 1999 (the ill-will from that prediction, which was sent to several high-level VA executives expressing concern over their business model and where I thought it would lead in the future, is one reason why I did not go to work for VA after they bought "selected assets" of Linux Hardware Solutions). I guess it took that long to burn through all the VC capital plus the IPO capital.

    The interesting thing is that this basically leaves Sam Ockman's Penguin Computing as the "last man standing" of the Linux hardware business as of September 1998. I remember meeting Sam at the Atlanta Linux Showcase in September 1998, the last show before the Linux Movement died and the Linux Business was born. At that time he had started his business only a few months earlier, barely had enough money to meet payroll, and was wandering around poking his nose into our boxes and into VA's boxes to see what parts we were using so that he could think about what he could do to compete against us. He'd already been evicted from one apartment for running an assembly line in the back bedroom (or was it the living room?). He had nifty ads in all of the Linux magazines, but was out of cash for any further ads. I remember Kit Cosper of Linux Hardware Solutions saying that Penguin Computing was not long for this world. Sam certainly has the last laugh here!

    -E

  • Agreed. We've bought something like 14 1U and 2U systems from VA, and the prices were great. Out of 14 we had one failure, a power supply that was replaced in 24 hours. Better still, when some systems they sold us wouldn't run Solaris (don't ask) as the ones we'd been buying had, they gave use free *upgrades* to the next-better systems that would run it. By comparison, we have about a 10% DOA rate on Gateway boxes, and replacement parts (which I've needed for 8 of our 22 systems) take 4-8 days to arrive - if I can convince the tech support weenie that yes I tried rebooting.

    In short, VA's hardware and excellent service will be missed. If nothing else, the UPS-powered blinding blue LEDs helped illuiminate the machine room when the blackouts happened. Dammit, now I have to find another vendor...oh wait, no I don't; we don't have any money either...

  • ...how long will it take to work it down with (measly) banner ad revenue?

    How many people will be let go?

    Is Raster and/or Mandrake still working for VA, by the way?

    Tremendous condolances, in any case. It's hard watch a dream die.

  • Sounds like the kind of brain surgery you have when you're going to die
    anyway but don't want to throw away your insurance.

    "Cash burn" eh. Are these new economic theories patented or open source?

    There's no doubt that VA Linux will be going out of business within the year. The
    software business never made money to begin with and now they're just
    shooting for a gentle slide into the ocean instead of an abrupt crash.

    Must say that enough Linux sites exist to virtually obliviate the need for anything but sourceforget on their OSDN hodgepodge. Unfortunately, when sourceforget goes, it'll be the 10th hosting provider I've had to relocate off of since the internet began.

  • So does anyone know where I can get a case similar to the ones that VA sold? Specifically, with the blue leds - thats really the only reason I want one. I dont want to get all fancy with it, but that one blue light shining into a dark room always made me smile.

    -----
    If Bill Gates had a nickel for every time Windows crashed...
  • by Nate Fox (1271) on Wednesday June 27, 2001 @12:33PM (#124464)
    Slashdot should be unaffected.

    Riiiiiight. Now is this what you think, or what they're telling you? Cause I had the CEO of the company stand in front of the entire Corporate office and say that we had enough money to last us till at least June (this was in March). Then this [fuckedcompany.com] happened. In March. March is a bit before June.

    The PHBs always tell you that the company will be fine. Could you imagine if they said otherwise? ;)

    -----
    If Bill Gates had a nickel for every time Windows crashed...
  • American Airlines has announced it will cease operation of it's fleet, and, instead, spend it's time and money working on an online set of websites

    Interesting you should mention this, even as a joke. At one point, AA really were making more profit off SABRE [sabre.com] than they were off flying planes around.

  • by ptomblin (1378) <ptomblin@xcski.com> on Wednesday June 27, 2001 @12:49PM (#124466) Homepage Journal
    the TiVO -> VA commute (8 miles approx.) used to take 45 minutes to an hour during rush hour.

    Yeah, it takes me a while to get off my butt from in front of the TV when there's good stuff recorded on the TiVo as well.
    :-)
    --
  • As an open source developer, I've made extensive use of the services offered by sourceforge [sourceforge.net] in building and releasing my open source project [sourceforge.net].

    When I graduate from college (assuming I get hired somewhere [psu.edu]) I wanted to give back to VA Linux for all they've given to me by purchasing a VA Linux workstation. This seemed like one of the best ways I could say thanks, but now that they're leaving the hardware business, what can I do?

  • by jd (1658) <.imipak. .at. .yahoo.com.> on Wednesday June 27, 2001 @12:14PM (#124468) Homepage Journal
    They're leaving the business that made them rich, in favour of a business that nobody else has succeeded in getting rich in.

    Does anyone else spot the teensy little flaw in the logic?

  • Never buy stock based on your religious believes.

    -adnans
  • by jht (5006) on Wednesday June 27, 2001 @12:39PM (#124474) Homepage Journal
    When VA (and Penguin, and a few other companies) got into the hardware business, there was a small market niche for boxes that were optimized for Linux, and preconfigured/tested appropriately. Once the bigger vendors (with drastically lower costs) stepped into the marketplace and Linux itself became a product that could be sold and installed straight from the box, the niche companies were doomed. When Linux servers become a commodity, then only the vendors with economies of scale will thrive. VA can't play that game.

    If there's any market to be had, it's in selling software and services (though probably not enough to justify the insane valuations that were taking place last year). In essence, Andover was onto the right idea for long-term sustained profitability, but VA wasn't. However, since Andover had much shallower pockets at the time, VA bought Andover instead of the other way around. Stock was cheap then. In the long term, VA was fated to be Just Another Box Company, and there's no money in that anymore (maybe a small shop can make money selling custom boxes, but big companies won't buy from a tiny boutique shop - just from the Dells, Compaqs, IBMs, and HPs of the world, cutting off the air supply of a small public company like VA).

    As a software/services/portal company they should have a lower cost basis (building, selling, and supporting boxes is expensive) and, more importantly, lower their cash burn a whole lot. After all, there are portals that make money, software vendors that make money (including Open Source software vendors), and services companies that make money. And there is some synergy between all of them (except for maybe ThinkGeek, but ThinkGeek probably doesn't cost a lot to operate and earns them enough street cred to be worth it). So even though VA's insane valuation was based on their being a hardware company, dumping hardware was probably the right move at the right time. Of course, in another year or so we should know for sure.

    - -Josh Turiel
  • Dell has far vaster resources than VA and has an established corporate name and eventually would have stomped them into the dust

    I agree. When the largest hardware vendor in the united states enters your market (in this case, Dell selling Linux pre-installed and semi-supported (support through linuxcare or redhat)) the effect is the same as when the largest software maker (M$) in the world enters your market for software you were selling.
    --
    You know, you gotta get up real early if you want to get outta bed... (Groucho Marx)

  • What box of theirs was unique? I just bought a 1221, one of VA's latest. It has 2 CPUs, a ServerWorks chipset, two hot-swap SCSI bays, and two full-length 64/66 PCI slots in a 1U chassis. Just from a quick Google, I found three other vendors selling very nearly the same gear. The only thing I was unable to determine was whether the other vendors have a front-panel serial port. That isn't a feature that would sway my decision.
  • To my knowledge their Athlon was never for sale. They carried it around to a few trade shows, but you couldn't have bought one.

    What's sick is that a machine I just bought for $6500 is going for $2200 at VA's fire sale.

  • by Jeffrey Baker (6191) on Wednesday June 27, 2001 @12:19PM (#124480)
    It isn't as if VA made the hardware in the first place. Someone else made it for them and slapped their label on the front. I've bought six machines from VA, but I'll have no problem buying the same hardware at the same price from someone else.

    Their sales staff were dumb as stumps. Troy T., I'm talking to you.

  • by deeny (10239)
    What? They are going to fire 140 of their most profitible employees? Is there some PHB type who can make sense of this for me?

    No. They're going to lay off 150(ish) of their *least* profitable employees.

    Note that revenue != profit. While they received the bulk of their revenue from hardware, that was also a disproportionately large share of their loss.

    Ergo, they expect, ultimately, to make more money as a software company. Worked for NeXT.

    _Deirdre

  • Why was trading suspended. Is it such bad news that they think investors may freak out?

    Actually, ALL trading is suspended (for a few minutes) when there's company news. That's why companies typically wait until after close-of-market for news -- so as not to interrupt trading.

    _Deirdre

  • by deeny (10239)
    Who the fuck is NeXT? I buy lots of software, but have never used or even seen anything by this NeXT outfit...

    Don't worry dear, that was before you were born. Clearly. NeXT made some of the best hardware and software for its time, ceased making hardware, then sold itself to Apple for $300M.

    MacOS X is mostly NeXT stuff with a fresh coat of paint and a lot of stuff for compatibility.

    _Deirdre

  • by deeny (10239) on Wednesday June 27, 2001 @12:19PM (#124487) Homepage
    Today, between the time when I know that there will be an impact but I don't know how many of my friends will be jobless, I hope that any who need to find a new job will be able to. The valley is pretty scary right now.

    For example, the TiVO -> VA commute (8 miles approx.) used to take 45 minutes to an hour during rush hour. Yesterday, it took 23 minutes from two miles further.

    If there are layoffs, some of the VA guys came from other places (like Linuxcare) and may have the pain (as I did) of having been downsized in more than one Linux company.

    Hang in there guys.

    _Deirdre
  • I never understood the rationale behind VA Linux. I can get better prices at the local screwdriver shop. If I want support and better engineered hardware, I can buy a server from IBM. In fact, that is what I did when I bought a low-end server last year.
  • Before Andover bought Slashdot and Freshmeat, they were really a piddling little company. I think their premier site was the broken link-haven of "Dave's Shareware". They did have Roblimo working there, I think, and obviously some netop and banner network experience.

    The key bit is that Andover had some access to capital, bought up some Linux community sites, and IIRC *almost immedately* sold out to VA.

    VA dumped tons of additional capital into the web business. The rest of OSDN, including linux.com, NewsForge, and SourceForge were all created solely by VA, and Andover was really just the middleman for slashdot and freshmeat. Tough to give them too much credit for VA's business move towards Linux web community sites.
    --
  • I've never really understood how VA Linux was supposed to work as a hardware business. Why buy from VA when you can get supercheap generic PCs? Even if you didn't have linux pre-installed by the generic vendors, it isn't that hard to crunch through an installation yourself, and the folks setting up server farms are certainly capable of doing this. Out in my corner of the real world, people would buy one or two VA Linux boxes to see what they were like, realize they weren't getting much for their money, and go back to the cheap boxes.

    And why should VA have a geek-cool buzz about them in some place like slash? I went up to a VA Linux booth at linuxworld once. First question "Do you have any alpha boxes?"; Second question "Uh, any AMDs?". Hm, just Intel processors, huh? See you...

    And if they can't make money in the web biz, oh well, those are the breaks. The open source movement doesn't *really* need corporate success to survive.

    Remember: free software will get you through times of no money better than money will get you through times of no free software.

  • You need fancy server hardware on the stuff that
    can't fail, e.g. if you've got your database
    running on one box (and the odds that that one
    box is going to be Intel based is pretty low).

    Using (relatively) cheap boxes as front-end webservers is an entirely reasonable thing to
    do. If one dies, oh well, you lose a few hits,
    but the next box in line takes over.

  • What I'd be curious to see is what would happen if VA tried to sell slashdot. You can't deny that Slashdot has a strong recognition amongst the geek community so it has value. I'm just trying to imagine IBM owning Slashdot... Actually RedHat would be a far more likely choice but it seems unlikely that Slashdot would go down with the ship.

    ---

  • by sharkey (16670) on Wednesday June 27, 2001 @06:46PM (#124505)
    June 23, 2001.

    --
  • by GOD_ALMIGHTY (17678) <curt DOT johnson AT gmail DOT com> on Wednesday June 27, 2001 @12:16PM (#124506) Homepage
    Wait... I thought VA bought Andover.net...
    Looks like the other way around

    Wow, those guys at Andover are a sneaky bunch
  • by shri (17709)
    That slashdot will soon stop advocating the usage of banner redux software like junkbusters :) Imagine having to rely on banner ads and sponsorships for make payroll!
  • I can't understand their decision. They just can't *loose* money. VA Linux hardware is expensive compared to the same hardware built by your own. And it's selling. And well, according to what I saw in racks.

    You won't see an VA boxes in our shop. Why pay twice the price of a local company that gives better turnaround and service? There's not a compelling reason. Things are tight for everyone out there, and if you can save some bucks by not buying overpriced (but prettily cased) equipment, that's a bonus. I think I'd have to punch anyone who bought a VA linux box in the face, right about now, because it just doesn't make sense.

    Obviously they're not selling enough hardware right now to cover their overhead. The future doesn't look too good either... Staff, Advertising, space, all these cost money. Unless you're selling A LOT of hardware, or have a very low overhead, you can't make money, and VA met none of these.


  • Yeah, I hear you. I was going to put one of my projects on SourceForge. Their info sheet and FAQ made it sound like the next best thing since cheese-whiz. Then I started looking at all the projects hosted on SourceForge, and got really cold feet...
  • YEs, but didn't you read? Revenue is != Profit.
    The burn rate for hardware is higher than that for their other operations... they will LOSE less money by NOT doing hardware business.

    I can have a rock solid revenue stream, as the previous poster said, by selling dollars for 99c, but I'll *never* be profitable.
  • It leaves VA in the same place they always were. They must provide warrantee and support as specified in the contract of sale.
    VA is not dissolving; they are just ceasing to sell hardware.
  • by mindstrm (20013) on Thursday June 28, 2001 @02:27AM (#124514)
    Delta Hotels International announced today it will be leaving the hotel business and instead concentrating on it's online 'global hotel reservation' website, as well as it's accommodation forums.

    American Airlines has announced it will cease operation of it's fleet, and, instead, spend it's time and money working on an online set of websites where peopel can discuss issues related to travel.

    Microsoft has announced it will be leaving the software business (yay) and solely making it's living off MSN(tm)Messenger(tm)

    Sheesh. Bye VA.
  • I like the add that sais "Want a VA Linux Server"...

    Kind of appropriate to have that banner ad displayed on a day like today...

  • Just because they brought in the most revenue doesn't mean they were the most profitable. In fact, they never made a profit at all, which means that cutting the division will cut expenditures even more than it cuts revenue, therefor benefiting the bottom line.

  • I don't know about the servers, but their workstations were really overpriced. Same goes for Penguin Computing.

    Wow, it was definitely the other way around for the servers - they were incredibly reasonable. We just decided to pick up about 40 1u servers from them, and then today's announcement hits. So much for that plan. Nobody could even come close to touching their 1u prices, and the hardware was phenomenal. Single-CPU 1u units could be had for about $1,000, and you sure can't find that at Dell (except with the crappy Celeron units).
  • Alas I just can't see how they can make it just selling banners.
    They don't aim to just sell banners. They will be selling/customizing/configuring/supporting the Sourceforge code for companies to set up internally for use on large software projects. I imagine that most companies that need this sort of thing already have in-house solutions for it, but I can imagine that outsourcing something like this would be more cost-effective. This seems to be what VA is banking on.
    --------------------------
    "Any fool can make a rule, and any fool will mind it."
  • by msaavedra (29918) on Wednesday June 27, 2001 @12:40PM (#124527)

    Anyone remember when, during the big IPO craze, that lots of people were saying that VA was the Linux company most likely to succeed in the marketplace? The rationale was that VA actually sold real, physical products. Unlike, for instance, Redhat, who was spending a bunch of money on software development and then giving it away for free in the hopes that people would sign up for support.

    Now, VA's hardware business is gone, and Redhat is on its way to becoming a profitable company. What happened?

    I guess that, strangely enough, VA has become a victim of the success of Linux. As industry giants like IBM and Dell have jumped into the Linux business, VA has seen its market share erode, apparently to the point where it is no longer reasonable for them to continue.

    It's a good thing they didn't have all their eggs in one basket. All of their purchases and investments after the IPO seemed a bit extravagant to me, but now they may be the only thing to keep the company alive. Sourceforge is a great product, and hopefully it is enough to alow VA to eke out a modest existence.

    One thing is certain: that 300 dollar share price on LNUX stock a while back sure seems pretty silly now. I suppose it seemed silly even then.


    --------------------------
    "Any fool can make a rule, and any fool will mind it."
  • Heh. Yeah, they just popped this one while I was reading this story:

    http://images.slashdot.org/banner/vali0034en.gif?9 93677539710 [slashdot.org]
  • Is Raster and/or Mandrake still working for VA, by the way?

    Mandrake is most definitely not, as you can find out by reading his web page at http://mandrake.net/. Raster appears (from his webpage, http://www.rasterman.com/) to still be working there, albeit it in Australia.

    -sugarescent
  • by gbr (31010) on Wednesday June 27, 2001 @12:10PM (#124530) Homepage
    I purchased several VA systems when I was at Videon here in Winnipeg. The systems have proven to be stable and reliable.

    I'm sorry to see this hardware resource go, and wish them the best of luck in the software world.
  • by D3 (31029)
    That when I refreshed Slashdot and got this story the banner ad was for VA.
  • Alas I just can't see how they can make it just selling banners. Maybe, by developing new business and consulting, but it will be very tough.

    Anyway I wish them all the best, as it will be really sad if Redhat is the only open source compagny to stay alive.

    These are sad days ! for linux and open source
  • by SpinyNorman (33776) on Wednesday June 27, 2001 @12:49PM (#124534)
    How long before we're hitting a PayPal button to pay ESR's salary?

    Maybe we could strip him naked and put him on a webcam like that guy on the Japanese TV show...

    Hit the PayPal button and watch ESR dance around as a small piece of cheese drops out of a chute into his rice bowl.
  • With [sun.com] Solaris licenses. I'm not sure you get a media kit though -- it'll probably cost you another $us60 or so, if you need the actual CD's. Sun traditionally includes an unlimited-user license for Solaris with every box they sell. The price is $us995.
  • by chrysalis (50680) on Wednesday June 27, 2001 @12:39PM (#124537) Homepage
    How can OSDN earn money ? Web banners ? Ad banners on Slashdot and Freshmeat are all for other OSDN services (valinux, sourceforge, thinkgeek or free software) .
    And OSDN needs a lot of bandwidth. I guess all that bandwidth isn't provided for free.
    On the other hand, when I walk through alleys of server farms, I always see a lot of VA Linux racks. They are easy to distinguish with their blue leds. So I thought that VA Linux was selling a lot of hardware. And selling hardware bring money. SGI is also selling VA Linux hardware (they just add their sticker) .
    I can't understand their decision. They just can't *loose* money. VA Linux hardware is expensive compared to the same hardware built by your own. And it's selling. And well, according to what I saw in racks.
    Compaq drops Alpha processors, Mandrake runs out of money, Netscape focuses on a stupid web portal, VA Linux stops hardware... That's bad. Really bad times for the world of Unix and free software.

    -- Pure FTP server [pureftpd.org] - Upgrade your FTP server to something simple and secure.
  • The word is "release".
    ------
  • Guess we should expect the VALinux Distro next week...

    I hope it's Debian-based...


    ------
  • by mjh (57755) <mark.hornclan@com> on Wednesday June 27, 2001 @01:02PM (#124542) Homepage Journal
    Does anyone else find it funny to see the very first /. article talking about how VA is going to give up their HW biz, and then right above that is a banner ad extoling the virtues of a VA 1RU or 2RU server?

    Ooh... now it says, "Need a VA Linux server? GREAT DEALS on VA Linux servers - CHECK 'EM OUT!". Well, yeah, I'd think if you're getting outta the biz, that you should be offering tremendous deals!
    --
  • Interestingly, I suspect that one reason they pulled out of the direct server market is that they can't really compete with IBM. Originally, VA filled a market demand for servers designed, tested, and supported to run Linux. Even (perhaps especially) for a startup getting computers that will be supported with the software you need or want to run is important.

    Now, IBM, and to a lesser extent Dell and HP, are getting into that market, and companies migrating to Linux, or a dual environment that have large investments in servers made by one or the other are much more likely to stay with that vendor for all their hardware needs across NT and Linux platforms.
  • Not any more. IBM, Dell, and HP are all starting to sell servers with Linux preinstalled and supported. That was VAs ace. It used to be that if you were a startup with limited resources and you wanted to use Linux for whatever reason (cost, flexibility, etc), but either didn't have the expertise, or didn't want to waste you expertise on system administration VA was a good choice to sell you a well designed server that had been tested under linux and supported with Linux on it. Now you can just go to Dell.
  • Better get your aluminium hat on, conspiracy boy.
    --
  • Yeah, no sh*t...

    The financial impact of the new VA Linux strategy will be significant. Historically, VA Linux has generated a significant majority of its revenues from the sale of its hardware products. VA expects its revenue to significantly decline with the elimination of the hardware segment.

    Here's the gun, here's the bullet, now where's my foot again?

    But one of the "new revenue streams" they're pursuing is this OSDN OnSite thing, which I guess gives people OSDN-like functionality on their own networks. Has anyone out there used this? Not just posted a project on OSDN, but actually paid for the OnSite product/service? Does it actually make your development more "efficient"? Do you use it to coordinate with development outside your corporate walls? Sounds like a neat idea, but are they really gonna make any money with it?

    ---

  • I have some job hunting tips at:

    Best of luck to everyone. I have a lot of respect for a company that would use a program like Cerberus [valinux.com] to stress-test its systems.

    where else can you buy hardware that you can count on not being crappy?


    Mike [goingware.com]

  • No, it was a Linux guy at one of the Colorado Linux Info Quests, but I forget who. One of the keynote speakers IIRC.
  • by Greyfox (87712) on Wednesday June 27, 2001 @12:51PM (#124556) Homepage Journal
    A while back someone (I forget who now) said "VA Linux is trying to be the Dell of the Linux world. Unfortunately there will only be one Dell of the Linux world and that will be Dell." Wish I could remember who it was who said that. Damn...
  • Well, Sun sells a UltraSPARCIII 1U server for $999...

    -carl
  • by god_of_the_machine (90151) on Wednesday June 27, 2001 @12:47PM (#124561) Homepage
    And OSDN needs a lot of bandwidth. I guess all that bandwidth isn't provided for free.

    Well... if they can't pay for bandwidth they could always shut down for a weekend and blame it on an incompetant female Cisco tech. I hear that works....

    -rt-
  • From the article:

    The financial impact of the new VA Linux strategy will be significant. Historically, VA Linux has generated a significant majority of its revenues from the sale of its hardware products. VA expects its revenue to significantly decline with the elimination of the hardware segment.

    So, they're pulling out of the area that was making the profits, to concentrate on the loss leaders? Someone explain this, it looks totally insane to me.


    "That old saw about the early bird just goes to show that the worm should have stayed in bed."
  • ...it was supposed to be the next Dell.

    Flame out.

    It always seemed odd to me that adding a free OS to a box seemed to make it cost more than a Windows box.

  • Hardware is a notoriously low-margin business. Only a few big companies can hope to compete on price. Anybody else who wants people to buy their iron had better add some serious value. "We'll install Linux for you" doesn't even come close.

    That's interesting. Intel made over $10 billion in profit last year (which FYI is more than any other tech company has ever made in one year), and had gross margins over 50% (which is absolutely unprecedented for a company of that size). All of the profit was from selling pure hardware, and they didn't do any "value added" crap either.

    There is certainly no other pure service company with either profits or margins anywhere in that ballpark. IBM makes a lot of profits (not as much as Intel), but their margins are considerably lower (they just have a lot of revenues).
  • You are definitely very confused. VA Linux was nowhere even within spitting distance of the biggest IPO ever. The five biggest IPO's ever are: (1) AT&T Wireless (just a couple of months ago), (2) UPS, (3) Conoco, (4) Goldman Sachs, and (5) Agere Systems.
  • If there are layoffs, some of the VA guys came from other places (like Linuxcare) and may have the pain (as I did) of having been downsized in more than one Linux company.

    Moral of the story: walk out of the interview if you find out that the company sells products which depend on Linux, contains Linux anywhere in its business plan, or in any way contains the word Linux in its ticker symbol.

  • by Shagg (99693) on Wednesday June 27, 2001 @12:52PM (#124578)
    When VA first started, there was basically no one else that was offering an "out of the box" linux installed hardware system for business use. The fact that they offered support and pre-installs, taking care of hardware integration and drivers, for linux was a pretty cool thing. Their uniqueness is what brought them alot of business.

    However, with the popularity of linux as a server system rising, we are starting to see the big boys such as Compaq and Dell get into the act. I'm guessing that VA has seen that they will not be able to compete with the larger hardware vendors, and are opting to stick with linux consulting/development roles. In one sense it's a shame to see VA driven out of the hardware role by the larger corps, but on the other hand it's a strong indication of linux's success.

    --

  • by twitter (104583)

    Yahoo sez:

    Historically, VA Linux has generated a significant majority of its revenues from the sale of its hardware products. VA expects its revenue to significantly decline with the elimination of the hardware segment.

    What? They are going to fire 140 of their most profitible employees? Is there some PHB type who can make sense of this for me?

  • Revenue != profit. Hardware may have the highest revenues, but it also presumably has the highest expenses, and probably has an enormous net loss if they're deciding to can it.

    The only "intuitive" interface is the nipple. After that, it's all learned.
  • by sigwinch (115375) on Wednesday June 27, 2001 @03:16PM (#124586) Homepage
    Yeah, K, but the next paragraph describes how they expect this to put them solidly in the red (or keep them there) for the next entire fiscal year.
    True, but their burn rate will be lower. They'll be spending money from cash accounts, but it will be at a much lower rate than the hardware business which is currently hemorraghing red ink.
    Of course "Revenue != profit," but it seems a strange move indeed to abandon what you acknowledge to be your strongest revenue stream.
    Profit is god, revenue is nothing. If a business is losing money and has no prospects of ever becoming profitable -- as their hardware business was -- you have to kill it.
    Anyway, I'm not an insider at VA, I don't know what they're thinking, but this seems to indicate that there's major trouble within.
    I know exactly what they're thinking: hardware is not profitable, and has no prospects of becoming profitable. Once you reach a consensus on that fact, the only logical path is eliminating that business. It doesn't matter how much revenue there is if it's being collected at a net loss. This allows resources to be concentrated on business areas that have a chance of becoming profitable. It also gives them more burn time to develop the businesses that have a chance of becoming profitable.

    A move like this takes guts. Plenty of companies would keep pissing away money on the failing business area out of habit, or out of fear of change. It's a good sign that they are willing to face the facts and make cold, calculating decisions. If they succeed in turning themselves into a profitable open source powerhouse, today will be remembered like Microsoft's famous Internet reorientation.

  • The five biggest IPO's ever are: (1) AT&T Wireless (just a couple of months ago), (2) UPS, (3) Conoco, (4) Goldman Sachs, and (5) Agere Systems.

    Offtopic, but had to add that that would be the USA-centric view of the world. The largest IPO ever [guinnessworldrecords.com] was that of ENEL in Italy at $19 billion.

  • The big problem with VA Linux is that all the things they're good at are free. Slashdot, SourceForge, etc. are good, but generate no revenue. VA Linux hardware and support don't seem to be notably better than anybody else's, but those were the revenue generators. It just doesn't work as a business.
  • Well, you can still buy that video card and those fancy aluminum cases from ThinkGeek. That's about half a system right there.

  • Too much "I'd buy X if Y" in the FS/OS communities. Not enough "I bought".

  • You forgot, ...That building a brand then tossing it away doesn't make any sense.

    If VA doesn't want to build the servers themselves, they should license the design to some other box maker. It would be kind of like what GM did to Chevy and all the other car makers.

  • Hey maybe that company that bought tuxtops when they were going to "focus on other projects" will buy va ...

    you never know

  • Didn't we get a similar anouncement from Compaq recently? When a hardware giant like Compaq wants to de-emphesize selling hardware in favor of software and services, that should be a big flashing neon sign that times are changing.

    Selling (low-end) systems is a dog-eat-dog business with razor-thin profit margins, which means that only the largest 2 or 3 players can crank the volumne necessary to make a decent amount of money. Plus, demand for new desktop manchines is down - people and companies are keeping their old machines longer because they don't need to upgrade. A 500MHz machine is already overkill as a desktop for most people. There really isn't any benefit in upgrading from a 500MHz box to (say) a 1.2+ GHz box if all you are running is an office suite, mail, and a browser -- there is no noticeable difference between the two unless you are doing somthing processor-intensive like CAD or rendering.

  • by green pizza (159161) on Wednesday June 27, 2001 @01:01PM (#124610) Homepage
    How will this affect SGI?

    That may sound like an odd question, but if you look at SGI's Linux offerings over the past 12 month, you'll see that they resemble a (poor) attempt at being a VA Linux wannabe.

    Also note that some of SGI's Linux servers were OEMed from VA.

    It will be interesting to see how this affects SGI over the next 6 months... will SGI's Linux offerings be better or worse as a result?
  • by fm6 (162816) on Wednesday June 27, 2001 @01:26PM (#124614) Homepage Journal
    What makes you think VA Linux is rich? They lost roughly $90 million in 2000 and 2001 looks just as bad.

    Hardware is a notoriously low-margin business. Only a few big companies can hope to compete on price. Anybody else who wants people to buy their iron had better add some serious value. "We'll install Linux for you" doesn't even come close.

    __

  • by duffbeer703 (177751) on Wednesday June 27, 2001 @01:06PM (#124628)
    What date will Slashdot disappear?

    My guess: February 16, 2002
  • by wytcld (179112) on Wednesday June 27, 2001 @08:21PM (#124632) Homepage
    VA puts the "co" in lab oration.

    The ideal situation in business is when you can do some particular thing so much better than nobody else comes close. That's just not going to happen for hardware built from standard parts.

    But VA, in doing the right thing with Source Forge, in terms of providing an environment to foster software initially to make their hardware look better, may have stumbled into an area where they can build a large business and keep the lead for some years.

    The stupid thing about the dot com bubble was the notion that a group of computer jocks would be so much smarter about just everything that they could do retailing better than, say, outfits that are run by families that have decades, sometimes centuries, of retailing culture under their belts. As if ability to work with computers assured you of having 50 bonus intelligence points that could be applied anywhere in life.

    Well, it's not that the nerds took over from the corporations. It's just the inverse: every traditional business of any size is becoming in significant part a software development house. And it's mostly a matter of working up from small projects that work for some particular location or department to a broader integration. The way to do this well, when you're not starting out with the computer system and trying to make the business fit it (the nerd model), is to start with the business intelligence in each of those locations and departments, and find a way to bring that all together.

    But that's been very hard to coordinate. Which is why way too many large businesses bring in SAP or the big consulting firms to try to do it top down - basically, the nerd's mistake again. For generic enough businesses, where the people really don't need to do more than run a widget assembly line and sell to established markets, this can work. But for a business with more specialized intelligence innate to its operations, this can really f*ck you up.

    Source Forge gives an organic way for a major corporation that's found that SAPiness saps their lifeblood, but that also has had prior trouble getting efficient, effective company-wide development worked up into higher-level integration, to pull niche-specific, wisdom-preserving integration off. Which puts VA into a position to get into the really serious money that currently mostly goes to stuffed suits who know nothing but how to walk the MBA walk - and who are hated by anyone in the firms being consulted who actually knows his or her shit, and sees how the "daddy knows best, he went to business school" attitude of the top-down fixers will destroy much of the real wisdom that older, successful corporations have accumulated in their staff.

    Business likes to give lip service to the 'new,' but business is profoundly conservative. Source Forge is the conservative way to embrace and develop the newest technology without nullifying the intelligence embedded in your current business culture. It's revenge on the nerds' premise that we were smarter than everyone in every way. But it also allows the nerds, as we go to payroll or contract work for old-line firms, a degree of freedom and collaboration that we wouldn't have if the only model was SAP-like. If we've got to serf the web, at least we can whistle while we work.

    (And this may be why Microsoft will essentially go out of business within a decade. Internal development based around open source models will leave no reason to license anything from Mickey G. He'll end up like Corel, with a slice of the home market from people who want to still use the software they used to know.)

  • by sulli (195030) on Wednesday June 27, 2001 @02:03PM (#124643) Journal
    Read carefully:

    VA Linux has generated a significant majority of its revenues...

    They need to maximize profits, which were not forthcoming from the hardware business, as you can tell from the discussion of "cash burn." OSDN can be made (maybe is already?) profitable, so it's worth keeping.

    After all, I can sell dollars for 99 cents and make lots of revenue. Stockholders a couple of years ago were willing to fund such behavior. No more.

  • by Moby-One GNUbie (201356) on Wednesday June 27, 2001 @11:05PM (#124645)
    >Best of luck to everyone. I have a lot of
    > respect for a company that would use a program
    > like Cerberus to stress-test its systems.
    >where else can you buy hardware that you can
    >count on not being crappy?

    As the author and (still VA-employed) maintainer of Cerberus/VA-CTCS [sourceforge.net], this comment really made me feel better on a day of reckoning -- most of the SW group was hanging around a little depressed after the announcement and when I and my coworkers saw this post, I felt that maybe a FEW people understood why it was that VA's systems always seemed "overpriced".

    We tried to change how PC hardware was manufactured. I developed automated factory quality control systems that enforced QA policies under Cerberus... while they were sometimes overridden for 'business reasons', the restrictions raised the bar for our products and made them more reliable per capita than anything else out there. A while back, I wrote an essay on "Microsoft Quality Hardware" published in the Linux Journal that described how I hoped Linux and Cerberus-like initiatives would save PCs from the scourge of the industry in quality.

    And we punched some holes in the status quo. Beating the odds, we discovered problems in products from every big name in PCs (Intel, Adaptec, Tyan, Mylex, etc) before anyone else, and it is certainly no small thanks to VA's dedicated SW and HW engineering groups that modern server hardware works as well as it does under Linux.

    I hope other HW vendors pick up the slack. With Linux and Open-Source drivers, it is _possible_ to prove conclusively if a piece of hardware is broken, and we can break the chain of component vendors pointing at Microsoft pointing at integrators, etc. Meaning that the PC industry can achieve the reliability of Sun at the price of Dell.

    Some things are changing at VA, but Larry was right when he said in the press release that our software component really has always been our differentiator. I just wish that we would have figured that out sooner, sold that aspect to our customers, and avoided our current predicament.

    Don't count VA out yet. There are a lot of smart people still here, and I think if VA can come out of this with morale intact and a concrete vision for the future, things will turn around.

  • by MSBob (307239) on Wednesday June 27, 2001 @01:04PM (#124669)
    That slashdot and other OSDN sites bear the main responsibility for generating revenue. Slashdot in particular as it's frequented by so many people daily. One way to do it may be to insert [valinux.com] some extra data (such as tags) into comments and help boost revenue [thinkgeek.com] and creating some subtle albeit effective advertising [mcdonalds.com]. Something akin to SmartTags [microsoft.com] should go a long way towards compensating for the cut revenue from hardware [dell.com] sales. How big a job would it be to implement that in slashcode?
  • by Ayende Rahien (309542) on Wednesday June 27, 2001 @01:21PM (#124671)
    That Microsoft can buy VA Linux for about 1% of its avertising campaign for XBox?

    That throwing away the part that *makes* moeny is no way to run a compnay?

    That a negative share price is *not* something desireable?

    That money is actually *needed* on the real world? You can't eat GPL. Okay, you can, but it's a sorry state of events, and isn't very nurtitent.

    That circular advertising is *not* a way to make money?

    --
    Two witches watch two watches.
  • by EastCoastSurfer (310758) on Wednesday June 27, 2001 @12:18PM (#124672)
    I don't see how the sale of one product(namely SourceForge OnSite) is going to keep VA Linux afloat. This is not to rip on them, but I just don't see it happening. Slashdot probably should start making contigency plans when(notice not if) VA goes under. Hmm... at least I will be able to get a pretty decent tax write off on the few shares that I own.
  • by OSDNBoss (318793) on Wednesday June 27, 2001 @02:02PM (#124681)
    There seems to be some confusion regarding the business we are moving into. The press release [valinux.com] clearly spells out the details. In summary, Sourceforge OnSite [valinux.com] represents a major opportunity in the software business for VA. We have tremendous customer interest and feel we will be successful.

    As far as OSDN is concerned VA Linux plans to continue to operate OSDN with no significant changes anticipated as the result of the restructuring. By the way, OSDN uses more than just web banners to support itself. Revenue comes from ad banners, sponsorships, events, and Thinkgeek [thinkgeek.com]. ;)

  • by Waffle Iron (339739) on Wednesday June 27, 2001 @01:34PM (#124683)
    Also, slashcode will soon be released under a shared-source licensing.

    Actually, the new release of slashcode is being delayed pending the port from Perl on MySQL to VisualBasic.NET on IIS.

    One notable change will be that all users will log in to slashdot using their Passport accounts. This will allow everyone to surf seamlessly between slashdot, hotmail and the MSDN site without needing to retype their passwords.

    Unfortunately, slashcode 2001 will only allow users to post via a special ActiveX rich text edit control. However, this new control will enable users to embed great streaming multimedia content in their flames and trolls. The port of this control to non-IE6 platforms may be done by a third party at a to-be-determined date. In the meantime, Windows XP will now be the /. user's platform of choice.

  • by SaturnTim (445813) on Wednesday June 27, 2001 @12:21PM (#124701) Homepage

    Actually they are going to make money from configuring Cisco equipment for Exodus...

    oops.

    --T
  • by kraf (450958) on Wednesday June 27, 2001 @12:41PM (#124704)
    They should definately concentrate on their core business, which is buying websites to raise awareness which in turn helps them to raise more VC which helps them to buy more websites...and so forth.
  • by GPLwhore (455583) on Wednesday June 27, 2001 @01:55PM (#124705)
    "That Microsoft can buy VA Linux for about 1% of its avertising campaign for XBox? "

    That says something about legitimacy of "new OS economy" evangelists like ERS ...
  • by A Commentor (459578) on Wednesday June 27, 2001 @12:18PM (#124712) Homepage

    I had thought that the value-added hardware sales, which VA had focused on, would have the best chance at generating a positive cash flow.

    I thought that selling a 'free' OS like Red Hat would be more difficult, but these announcements(this and RedHat's quarterly results) seem to show just the opposite..

    Oh, well, What I'd really like to know is if there will be any really good sales on VA Equipment?

  • by Hagabard (461385) on Wednesday June 27, 2001 @05:45PM (#124713)
    Even if the product is as successful as Apache I can't see them making enough $$ for the payroll of supporting all these sites w/o significantly slashing across-the-board. They even state on the osdn.com about page that banner ads & VALinux kept them afloat: here (bottom of page) [osdn.com] or for an excerpt: And please don't forget our advertisers, business partners or the kind people at our parent company, VA Linux; they're the ones who pay our salaries and buy the bandwidth for 100 million pageviews a month. Without their support, we wouldn't be able to supply OSDN services free, and give away free OSDN memberships.

    If VA-Linux was keeping OSDN afloat then how the hell is OSDN going to keep VA-Linux going? By swapping banner ads with partners? If support of SourceForge software was such good business then what could be a better sell than to bundle it pre-configured on VA-Linux servers? But wait, "who'd want to pay 4k for free software on a development server that would never see incredibly high traffic to justify the cost", you ask? Well, then, who the hell is going to pay 10k for VA/OSDN to set it up? Or do you VA/OSDN could fly consultants around the country for two-week projects at a lower cost than that?

    Any VA-Linux stockholder should feel they've just fell victim to the ol' bait-n-switch. "We're a hardware company, no...a publishing company, no, wait...a software company..." Next you'll hear that they're going into B2B which, as everyone knows, is the death-rattle of any "new-economy" company.

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