RealTime IT News

Red Hat Not 'Religious' About Microsoft

As quarters go, the most recent one was a standout for Red Hat, the number one Linux vendor .

The company released a new version of Red Hat Enterprise Linux (RHEL), launched a new partner program called Red Hat Exchange (RHX) and made more money.

Red Hat said its net income for its first fiscal quarter of 2008 was $16.2 million (8 cents per diluted share), a 17 percent increase from its profit of $13.8 million (7 cents per diluted share), in first quarter of fiscal 2007.

Revenues also rose at the Linux vendor to $118.9 million for the first quarter of 2008, which ended May 31. That's a 42 percent increase from the same period a year ago. The bulk of the revenue for Red Hat came from subscriptions to its Linux software, which brought in $103 million for the quarter, up 44 percent over the first quarter of fiscal 2007.

But it apparently wasn't enough for some investors, who saw too much spending on marketing during the quarter and sent shares down by over 7.5 percent to close at $22.37 in regular trading today.

It was also a quarter in which Microsoft ratcheted up its patent saber rattling , which could potentially be a large issue for Red Hat. Microsoft recently disclosed that it has 235 patents that "read" on open source technology, but has not identified which patents the Linux kernel allegedly infringes upon. "We continue and invite the opportunity to participate with Microsoft around standards and about improving the customer relationship and experience of being able to operate successfully within a heterogeneous environment," Red Hat CEO Matthew Szulik said in response to a question about dealing with Microsoft about patents. "For us, it's less religious and more importantly about how do we create a win-win for the customer. Our position hasn't moved and it's been the same for as long as I've been at Red Hat."

Szulik explained on the conference call that two years ago the majority of Red Hat's sales were done directly by Red Hat. In the first quarter of 2008, some 50 percent of global sales came indirectly through the channel. According to Szulik, the shift to the channel is a positive indicator of demand. He also revealed that two JBoss sales of greater than $500,000 came through the channel in the quarter.

Red Hat's CEO also warned investors that the new Red Hat Exchange (RHX) effort, which was launched in May, is not likely to be an immediate financial success. The Exchange is an effort to make it easier for end users to get a myriad of third-party vendors' applications directly from Red Hat.

"RHX is in an investment period and while we're encouraged I've communicated to investors not to expect material fiscal contributions from RHX," Szulik said.