Red Hat Revenue Up 76 Percent in Q2

Linux software powerhouse Red Hat Inc. posted a 76 percent increase in revenue in its second quarter, ended Aug. 31, but losses also rose, led by acquisitions and infrastructure expansion costs.

In its earnings report, which was released Thursday, the Durham, N.C.,-based company showed US$18.5 million in revenue, a 76 percent increase over the $10.5 million posted a year earlier.

Reported losses totaled $15.7 million, or 10 cents per share, up from $4.8 million, or 7 cents per share, a year earlier. Adjusted net losses totaled $1.9 million, down from $4.3 million a year earlier.

Tim Buckley, Red Hat's chief operating officer, on Friday called the figures a positive indication that the business, founded in 1994, is heading in the right direction.

The numbers show that the company continues to make its way toward profitability, which is on the horizon sometime next year, he said.

"We made it very clear six months ago, nine months ago, that we will be profitable in the [calendar] year 2001," Buckley said. "We're steady as we go that that's our mission. And I think what the market's saying is, 'We believe that.'" In trading Friday, the company's stock dipped after one financial analyst downgraded it from Buy to Market Outperform, but Buckley was unmoved, calling the downgrade "splitting hairs." The stock was also down Monday morning by 1 1/16, to 20 1/8.

"Most of the analysts are saying '[the company has shown a] strong quarter, profitability seems to be in the offing, they're showing us they can manage the business,'" Buckley said. "We're happy about that."

George Weiss, an analyst at Gartner Group Inc. in Stamford, Conn., said the continuing strength of Linux in the marketplace in a good sign for Red Hat.

He called the increased revenue for the quarter "a good sign" and noted that the losses were due largely to two recent acquisitions the company made.

"They're spending money on acquisitions," Weiss said. "There might be a master plan here," but the company hasn't divulged it yet.

Buckley acknowledged the mystery of its future plans but said the company's direction will be announced later this month when several new products are launched.

Weiss said the earnings figures also show how hard it can be for Linux companies to make money in a world where software and ideas are basically given away for free.

"The losses would indicate that it's taking probably longer for a company in a Linux or open-source community to create a financially profitable business model than in perhaps other segments of the market," Weiss said.

When it all shakes out, he said, there will probably end up being no more than two or three companies that can remain viable as Linux software distributors in the long run.

"More than three is probably going to be bordering on impossible as far as maintaining a viable business model over the long term," he said.

In the statement, Matthew Szulik, president and CEO of Red Hat, said the company is continuing its plans for revenue growth while improving operating efficiencies.

Red Hat is the market leader for Linux software, according to International Data Corp. figures.

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