Revenue rises as Red Hat confirms reseller plans

Revenue and net income surge Q2 due to global expansion and robust sales

Global expansion and strong Enterprise Linux subscriptions have lifted Red Hat to double-digit growth as the CEO confirms Red Hat's solution and services provider transformation.

Red Hat reported profit of US$18.2 million, or $0.09 per diluted share, an increase of 64 per cent year on year for the second quarter of the company's fiscal year, which ended August 31.

In a press statement, Red Hat attributed its strong growth to overseas expansion, particularly in Japan, where a Nikkei Market Access survey ranked Red Hat Japan the number one technology vendor for customers. The company also saw increases in operating margin and operating cash flow, business performance improvements important to Red Hat's global expansion, said Charlie Peters, executive vice president and CFO, in a press statement.

This year, subscriptions revenue continued to outshine revenue from training and services, though both segments saw increases for the quarter. Revenue from subscriptions comprised US$109.17, or 86 per cent of revenue, while revenue from training and services was US$18.1 million, or 14 per cent.

The news came as Red Hat Chairman, CEO and President, Matthew Szulik, on a conference call in the US announced some changes to Red Hat's business structure. Red Hat is preparing to expand from a Linux company into a full-service enterprise software and services provider.

The company is splitting into three lines of business: infrastructure, middleware and online services. Each of those divisions will have a general manager who will be compensated on the profitability of his or her business, he said. General managers also will be responsible for product marketing, and Red Hat's Michael Chen, who is returning to the US from China after a three-year stint building Red Hat's business there, is now vice president of corporate marketing, Szulik said.

Last year for the same quarter Red Hat reported profit of US$11.04 million. Revenue for Q2 was US$127.3 million, up 28 per cent over the year ago quarter when the company reported revenue of US$99.67 million. Non-GAAP adjusted net income for the quarter was US$36.9 million, or $0.17 per diluted share, a figure in line with consensus estimates from analysts at Thomson First Call.

Non-GAAP operating margin was 20.7 per cent for the quarter, an increase from 17.8 per cent year over year. Non-GAAP operating cash flow was US$63.7 million for the quarter, up 43 per cent year on year and 22 per cent sequentially.

Red Hat continues to be the leading commercial provider of Linux server software, but the company also expanded its portfolio of open-source products for enterprise customers in Q2. Notable product releases during the quarter were JBoss Enterprise Application Platform 4.2, software infrastructure for helping enterprises migrate legacy applications to an open-source platform, and a beta of Red Hat Developer Studio, a development runtime and set of open-source tools built atop the popular Eclipse development framework.

Red Hat also made gains in increasing support among third-party applications for Red Hat Enterprise Linux. In Q2, the company passed the 3,000 mark for the number of applications certified to run on its enterprise OS.

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Elizabeth Montalbano

IDG News Service
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