Red Hat in the black in third quarter

Linux software maker Red Hat Inc. achieved its first quarterly profit in the third quarter of its 2003 fiscal year ended Nov. 30, boosted by growing sales of its enterprise server operating system.

Net income was US$305,000, with earnings per share breaking even, based on U.S. Generally Accepted Accounting Principles (GAAP). In the third quarter of the previous fiscal year, Red Hat reported a loss of US$15.1 million, or US$0.09 per share. Revenue for the just-ended quarter totaled US$24.3 million, compared to about US$20 million in the year-earlier quarter.

Analysts had expected the company to break even on sales of $23.4 million, according to analysts polled by financial research group First Call/Thomson Financial.

Enterprise revenue, which does not include the company's embedded software business, accounted for 93 percent of Red Hat's total revenue, the company said. Contributing to the nearly 50 percent year-over-year growth in its enterprise business was Red Hat Linux Advanced Server, its enterprise server operating system, which acquired 12,000 new customers during the quarter. Those new subscribers more than doubled its customer base for that product, it said.

During the quarter Red Hat delivered its first 64-bit workstation operating system, which shipped on workstations from Hewlett-Packard Co. Although it did not comment on the success of the product during the third quarter, Red Hat predicted that sales of those workstations would exceed 2,000 units in the current quarter.

Red Hat is also hoping its partnerships with major vendors such as IBM Corp. and Oracle Corp. will help boost future interest in its operating system products. Oracle has tuned a version of its database clustering software to run on Red Hat's Advanced Server operating system.

"Those partnerships were really not that much of a contributor during the quarter, but we're focused on making those relationships successful and prosperous," Matthew Szulik, Red Hat's chairman, president and chief executive officer, said in a phone interview.

For the current quarter, Red Hat expects sequential revenue growth driven by its enterprise sales and services business, executives said during a conference call with analysts after its earnings release. Revenue is pegged to come in between US$26.5 million and US$27.5 million, representing growth of 9 percent to 13 percent over the third quarter

The company expects to continue operating in the black with net income in the fourth quarter of between US$1.3 million and US$2.5 million. Earnings per share is expected to be about US$0.01, it said.

"We think that the market is at its very early stage," Szulik said. "And we've conservatively managed the business."

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