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Red Hat Earnings Beat Forecast

By Steven Vaughan-Nichols  |  Posted 2006-12-22 Print this article Print

Despite strong challenges to its core business, Red Hat posts better-than-expected results for the third quarter.

Red Hat on Dec. 21 announced better-than-expected financial results for its fiscal year 2007 third quarter.

The total revenue for the quarter was $105.8 million, an increase of 45 percent from the year-ago quarter and 6 percent from the prior quarter. Subscription revenue was $88.9 million, up 48 percent year-over-year and 5 percent sequentially.

Net income for the quarter was $14.6 million, or $0.07 per diluted share, compared with $11.0 million, or $0.05 per diluted share, for the prior quarter. Non-GAAP (Generally Accepted Accounting Principles) adjusted net income for the quarter was $29.6 million, or $0.14 per diluted share, after adjusting for stock compensation and tax expense. This compares with non-GAAP adjusted net income of $22.7 million, or $0.11 per diluted share in the third quarter of last fiscal year.

At quarter end, the company's total deferred revenue balance was $311.7 million, an increase of $27.6 million, or 10 percent, when compared with the end of the last fiscal quarter.

The company's operating income for the quarter was $13.6 million. That was up 44 percent from $9.5 million in the prior quarter. Some of this revenue came from Red Hat added over 12,000 net new customers during the quarter. This quarter also saw the company's revenue coming equally from its channel partners and direct sales.

Red Hat also had total cash and investments, as of Nov. 30, of $1.1 billion in its piggy bank.

Red Hat, of Raleigh, N.C., faced strong opposition in the last quarter. First, database giant Oracle adopted RHEL (Red Hat Enterprise Linux) as its own, rebranded it as Unbreakable Linux, and started to compete directly with Red Hat.

Red Hat CEO Matthew Szulik said during the earnings conference call that Red Hat's customers, and prospective customers, aren't interested in saving 5 to 10 percent of the upfront cost if they don't get Red Hat's high level of service.

Charlie Peters, Red Hat's executive vice president and chief financial officer, noted that Red Hat was "particularly pleased to be named by CIO Insight, for the third consecutive year, as the No. 1 enterprise software vendor in delivering value to customers."

Days after Oracle made its announcement, Novell and Microsoft formed a partnership. A major theme of their agreement was that those two companies could do a better job of bringing interoperability to Linux and Windows than any other Linux company could.

Click here to read more about the Novell-Microsoft agreement.

In another jab at Red Hat, Microsoft claimed that Microsoft IP (intellectual property) is in Linux. Red Hat denies that there is any truth to this claim. Szulik said during the earnings call that attempts to throw FUD on Linux by SCO three years ago have already failed.

"The marketplace for Linux and open source globally continues to grow, and it's unstoppable," said Szulik. The attempts by other companies to stop it with vague IP claims, Szulik said, will come to nothing.

In after-hours trading, Red Hat stock zoomed up 14.42 percent on the quarter's news.

Check out eWEEK.com's for the latest open-source news, reviews and analysis.

Steven J. Vaughan-Nichols is editor of eWEEK.com's Linux & Open Source Center and Ziff Davis Channel Zone. Prior to becoming a technology journalist, Vaughan-Nichols worked at NASA and the Department of Defense on numerous major technological projects. Since then, he's focused on covering the technology and business issues that make a real difference to the people in the industry.
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