Red Hat Q2 revenue up 36 percent from 2002

Linux vendor Red Hat Inc. Thursday announced second-quarter 2004 revenue of US$28.8 million, up 36 percent from a year ago, when it posted revenue of US$21.2 million. Revenue for the quarter, which ended Aug. 31, was up 6 percent from the US$27.2 million posted in the first quarter, which ended on May 31.

Net income for the second quarter was $3.3 million, or 2 cents per share, more than double the net income of US$1.5 million, or 1 cent per share, it reported in the prior quarter. The figures also reflected a turnaround from a year ago, when the Raleigh, N.C.-based company posted a net loss of US$1.9 million, or 1 cent per share.

For the second quarter, Red Hat reported a net operating profit of US$240,000, compared to a net operating loss of US$1.1 million in the prior quarter and a net operating loss of US$4.7 million in the second quarter of 2002.

"Our strong quarterly operating results reflect the strong demand for standards-based Red Hat Enterprise Linux Solutions in the enterprise," said Kevin Thompson, vice president and chief financial officer of the company. "The consistent improvement in our gross margins over the last three quarters to 72 percent for the second quarter shows the significant scalability of our subscription business model."

Dan Kusnetzky, an analyst at IDC in Framingham, Mass., said the positive numbers for Red Hat can be attributed to the strategy the company began taking in the past year on developing products for the enterprise market.

Both Red Hat and competitor SuSE Linux AG in Nuremburg, Germany, came out with enterprise server versions of their core Linux operating systems and have been selling them at prices far higher than their desktop versions, Kusnetzky said. "Both companies are now showing their revenues are up," he said. "I think that the enterprise products are starting to get some traction" because they are more stable and have fewer update cycles.

"All of those things are important as Linux moves into the mainstream in more and more companies and more and more markets," Kusnetzky said. "Those two companies are largely driving the revenue stream of the Linux market."

Red Hat posted its positive numbers despite some uncertainty and volatility lately in the Linux marketplace.

In March, Unix vendor The SCO Group Inc. sued IBM Corp., alleging that IBM illegally put Unix code belonging to SCO into the Linux open-source project to benefit IBM's sales. The original US$1 billion lawsuit was later amended and now seeks more than US$3 billion in damages. IBM countersued SCO last month.

In August, Red Hat itself sued SCO, alleging that the company was harming Linux in the marketplace through "unfair and deceptive" actions. Earlier this week, SCO filed a legal motion asking the court to dismiss Red Hat's suit.

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