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Red Hat, First Open Source Vendor to $1 Billion?

To date, Red Hat has been one of the most financially successful Open Source vendors on Earth. The goal now though is to grow even more to hit a new financial milestone - $1 billion in revenue.

"We believe there is tremendous opportunity for Red Hat over the next decade and that we're still in the early stages," Red Hat CEO Jim Whitehurst said during the company's fiscal 2008 year end conference call. "We are pleased with our fiscal 2008 results of surpassing $500 million in revenue and we are now squarely focused on our next goal, to become the first billion dollar revenue open source vendor."

Red Hat's fiscal 2008 ended on ended February 29, 2008. The year end call is the first in which Whitehurst helmed the company as CEO since former .

Revenues at the Linux vendor hit $523 million for its fiscal year 2008 which is a 31 percent increase over its total 2007 revenue tally. The 2007 total revenue figure of $400.6 million itself was a 44 percent improvement over Red Hat's fiscal 2006 year end revenue figures.

On the net income side Red Hat (NYSE:RHT) reported full year fiscal 2008 net income of $76.7 million ($0.36 per diluted share) which is an improvement over the $59.9 million ($0.29 per diluted share) reported for fiscal 2007. While Red Hat's 2008 net revenues were higher than those reported in 2007, they still trail the fiscal 2006 figure which was reported at $79.7 million ($0.41 per diluted share).

A key part of Red Hat's revenue growth is now coming from its JBoss middleware division. Whitehurst noted that during the fourth quarter of 2008 the middleware business grew twice as fast as Red Hat's Linux operating system platform business.

That said the key focus for Whitehurst is to drive higher revenues, in part by improving Red Hat's own efficiency. During the call Whitehurst noted that Red Hat is investing in its own infrastructure in terms of people process and technology.

Red Hat CFO Charlie Peters added that one of the key initiatives is technology to improve the process for handling sales leads.

"Historically we've had an aging problem with our sales leads," Peters admitted on the call.

The plan with the new system is to turn the leads into sales more quickly.

Peters also commented on the current uptake of Red Hat's flagship Linux offering Red Hat Enterprise Linux 5 (RHEL) which has now been in market for a year. Peters noted that Red Hat is seeing existing customers moving from earlier versions to the new version. As proof of that fact he reported that the top 25 deals that renewed with Red Hat renewed at 120 percent of their original subscription rate.

The implication is that customers are moving from the lower priced older RHEL 4 to the higher priced RHEL 5.

In terms of the potential effect of the current economic slowdown in the US, Red Hat's CEO actually sees it as an opportunity.

"Indicators suggest that the broader economic environment may be more challenging this year and we believe that Red Hat will be particularly well positioned to capitalize on this dynamic," Whitehurst said. "Open source in general and our products in particular represent proven ways for enterprise to reduce their operating costs."