Red Hat reports loss as revenue slips

Linux software maker Red Hat reported a break-even quarter in terms of adjusted earnings per share as revenue slipped 15% from...

Linux software maker Red Hat reported a break-even quarter in terms of adjusted earnings per share as revenue slipped 15% from the same quarter a year ago.

The maker of the Red Hat Linux open source operating system lost $100,000 (£68,000), with flat earnings per share in the fiscal second quarter, which ended on 31 August, after adjusting for one-off charges. In last year's fiscal second quarter, Red Hat reported a loss of $4m (£2.71m), or two cents per share, excluding charges.

The second-quarter figures represent the third consecutive quarter Red Hat has reported at least a break-even quarter, the company said. "That's pretty incredible when everyone else is running around in the red," said Matthew J. Szulik, Red Hat's president and chief executive officer.

Red Hat matched analysts' estimates calling for break-even earnings per share, according to a poll by Thomson Financial/First Call, which forecasts earnings per share excluding charges.

Including charges and other one-time costs, Red Hat said it lost $55.3m - or 33 cents per share - in the second quarter of this fiscal year, compared with a loss of $20m - or 12 cents per share - in the same quarter a year ago.

Those charges included a restructuring cost of $37.2m, to account for $33.8m in costs related to acquisitions made in prior periods, and $3.4m in severance-related expenses. During the quarter, Red Hat said it restructured its operations to focus on two primary areas: migrating customers from the Unix operating system to Linux and fortifying its products in the embedded system market.

The company announced several new customers that will use Red Hat services to migrate to Linux, including financial services company Morgan Stanley Dean Witter Online. Retailing giant Amazon, a long-standing Red Hat customer, has also increased its deployment of Linux with Red Hat products.

"These enterprise successes validate the large market opportunities we are pursuing," Szulik said following the earnings release.

Total revenue for the second quarter was $21.1m, down 15% compared to $25m in the same quarter last year. A significant portion of that revenue came from overseas sales of embedded operating systems to device manufacturers.

International sales contributed roughly 33% to fiscal second-quarter revenue, up from 29% in the first fiscal quarter of 2001, the company said. The Japanese, Korean and Chinese markets showed the biggest gains during the quarter, offsetting some of the declines in the US where weak performance in the semiconductor sector lowered embedded systems revenue, according to Kevin Thompson, Red Hat's chief financial officer.

The company offered only general guidance for the current and upcoming quarters. "We expect revenue growth to be moderate, but we continue to plan on being break-even to profitable on an adjusted earnings per share basis going forward," Szulik said.

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