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Red Hat Gives Shout Out to Yahoo on Earnings Call

Red Hat CEO Matthew Szulik used his company's fiscal fourth-quarter and fiscal year earnings call to acknowledge that, although Yahoo is using Oracle Linux, the search engine has not displaced Red Hat. In fact, he said, his company is on the verge of expanding its Yahoo footprint.

Red Hat's expanded Yahoo footprint will come at a time when Red Hat is growing overall revenues, though net earnings declined.

The company's net income for the fourth quarter of 2006 was $20.5 million or 0.10 per diluted common share. The quarterly income is an increase over the prior quarter in which Red Hat reported net income of $14.6 million 0.07 per diluted common share.

For the fiscal year ended Feb. 28, 2007, net income was $59.9 million or $0.29 per diluted share, which is some $19.8 million less than the $79.7 million or $0.41 per diluted share that Red Hat reported for the prior year. Though net income was down, total revenue for the year was up over the prior year by 44 percent to $400.6 million. Red Hat attributed the decline in net income to increased operational expenses partially due to the acquisition and integration of JBoss.

Red Hat CFO Charlie Peters also noted on the call that total revenue was below his guidance as a result of training revenue coming in lighter than expected.

Software subscriptions, Red Hat's greatest driver of growth and revenue, were up dramatically to $341.2 million, up 48 percent from the prior year.

The Linux vendor also now faces increased competition and challenges in the Linux marketplace, which is something that Szulik was repeatedly asked about.

One call participant questioned the effect of Oracle Linux at Yahoo, referring to Oracle CEO Larry Ellison's claim last week that his company had displaced Red Hat at Yahoo.

"I spoke with Yahoo executives yesterday and they were quick to respond that they have and continue to have a very successful relationship with Red Hat," Szulik said. "They have selected Oracle Linux to run on a number of Oracle database servers but they expect to currently, and in the future, have a positive relationship with Red Hat.

"We're in discussion of expanding their Red Hat Enterprise Linux footprint with us, as well," Szulik added.

Another call participant asked Szulik about interoperability with Microsoft. Red Hat competitor Novell signed an agreement with Microsoft in November that specifically deals with interoperability that some considered a blow to Red Hat. Szulik has a different view.

"Our team is working with Microsoft on interoperability it just doesn't the public fanfare online," Szulik said. "We want to continue to drive vendor-neutral standards like ODF [Open Document Format], and I think we continue to work with all vendors on the client and server side on the goal of interoperability."

Szulik also weighed in on the recently released third draft of the GPL version 3 open source license. Red Hat has not commented publicly on the draft, which is something that Szulik was questioned about on the call.

"GPL 3 like all versions of the GPL, work like a good open source project: It gets lots of opinion and enthusiasm but it continues to iterate," Szulik said. "The draft that we saw is better than earlier drafts specifically around the areas of patents and patent infringement. I think we've been quiet because our team here chooses to work through the committees."

Red Hat this month released the latest version of its flagship Red Hat Enterprise Linux 5.

Additionally the Linux vendor announced a new Red Hat vendor application program called the Red Hat Exchange, which is expected to be formally launched at Red Hat's upcoming user Summit in May.