Red Hat revenue surges 11%

Linux appealsto the thrifty

Staff WriterJune 25, 2009 

Software company Red Hat continued its recession-defying performance by posting an 11 percent increase in quarterly revenue that outpaced analysts' expectations.

Profits for the fiscal first quarter that ended May 31 totaled $28.7 million after excluding certain expenses, up from $26 million a year earlier, the Raleigh company reported late Wednesday. Earnings per share totaled 15 cents, ahead of the 14 cents forecast by analysts.

"I think it was a good quarter," said Ladenburg Thalmann analyst Aaron Schwartz. "Certainly Red Hat is able to distinguish itself from its peers as a growth company in this market."

Red Hat sales have benefited from the fact that its open-source Linux software is cheaper than proprietary products sold by competitors such as Sun Microsystems and Microsoft. Red Hat is the No. 1 supplier of Linux.

Revenue for the quarter totaled $174.4 million. The company previously had projected that revenue would range from $171 million to $173 million.

By contrast, Oracle, the second-largest software company, reported a 5 percent decline in quarterly revenue this week.

Red Hat executives also say they have satisfied customers. The top 25 contracts up for renewal in the quarter all were renewed -- and were worth 20 percent more.

Customer loyalty

"Our largest customers continue to renew and spend more with Red Hat" in spite of the economy, CEO Jim Whitehurst said during a conference call.

Some of the credit goes to the company's "very solid" customer support, Charlie Peters, the company's chief financial officer, said in an interview late Wednesday.

"The New York Stock Exchange runs on Red Hat," Peters said. "Some of the most mission-critical systems in the world run on Red Hat because it is reliable. It doesn't freeze up like Microsoft."

On the minus side, Schwartz was disappointed by the $177 million in new billings that Red Hat reported, which fell short of the $189 million he was anticipating. Billings, or the value of contracts sold in the most recent quarter, are a rough indicator of future revenue.

Still, Red Hat maintained its sales and earnings projections for the year.

Peters noted that "billings can vary from quarter to quarter." In addition, he said, some customers are opting for shorter contracts.

"That's not entirely surprising, given the current economic environment," he said.

Red Hat released its earnings after the markets closed. Earlier on Wednesday, its shares closed at $20.10, up 47 cents.

Red Hat shares have climbed more than 50 percent this year. Speculation that Oracle was planning to buy Red Hat helped fuel the stock's appreciation earlier this year, but that buzz died down after Oracle announced it had agreed to purchase Sun Microsystems. or 919-829-4877

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