Red Hat Misses Estimates

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Red Hat disappointed analysts Tuesday, recording a net loss of $56,000 for its fourth quarter, though it said it broke even on a per-share basis. Analysts had been looking for 1 cent per share earnings.

The company cited a foreign currency loss of $900,000 as part of the shortfall, though erosion of the company’s retail and embedded markets as it pursued the enterprise market are also part of the mix. However, the company said it achieved revenue of $25.9 million, a sequential increase of 7 percent over the $24.3 million it recorded in the third quarter of fiscal 2003. It also represents a 40 percent year-over-year increase.

Additionally, Red Hat said it generated $3 million in positive cash flows from operations during the quarter, and that it ended the year with a cash balance of $292 million, an increase of $5.4 million as compared to the balance last year.

“Through strong performance of all our enterprise technologies, Red Hat was able to achieve steady, consistent growth in fiscal 2003,” said Kevin Thompson, executive vice president and chief financial officer of Red Hat. “In a difficult environment, Red Hat delivered four consecutive quarters of revenue growth, increasing positive cash flows, and decreasing operating losses.”

The company has been pushing the enterprise side of its business, which was reflected in the numbers. While subscription and services revenue for retail technologies fell from $5.4 million to $2.8 million between Nov. 30, 2002 and Feb. 28, 2003, subscription and services revenue for enterprise technologies rose from $6.9 million to $10.7 million in the same period.

The company said fourth quarter sales of subscriptions for its Red Hat Enterprise Linux AS (formerly known as Advanced Server) increased by 4,500 to 16,500 subscriptions, an increase of 38 percent compared to the third quarter of fiscal 2003. The company said subscription revenues from enterprise technologies grew 54 percent sequentially and 103 percent year-over-year.

“In Q4 we continued to add significant enterprise customers,” Thompson said, noting that JP Morgan, Citibank and Electronic Arts joined the fold.

Thompson also added that the company is looking to its newly segmented enterprise family to pave the way for future growth. On March 12, the company added Red Hat Linux ES and Red Hat Linux WS to its enterprise offering. Red Hat Linux ES is an operating system for entry-level and departmental server applications, geared for application-, network-, file-, print-, mail-, and Web-serving, as well as for running custom or packaged business applications. Red Hat Linux WS is the company’s new enterprise-class engineering desktop/workstation, which the company said is geared for software development, electronic design and compute intensive work.

Both offerings are fully compatible with Red Hat Linux AS.

“This segmentation strategy will pay incredible dividends as Linux adoption accelerates in the enterprise,” Thompson said.