Red Hat restructures after poor results

Linux market leader Red Hat has restructured its business to widen its focus on the enterprise market while scaling back its...

Linux market leader Red Hat has restructured its business to widen its focus on the enterprise market while scaling back its embedded Linux operations and closing its network consulting unit.

In an announcement yesterday, the company revealed the strategy as part of its fourth-quarter and year-end financial results. Red Hat decided to restructure after poor performance in a soft economy.

For its fourth quarter ended 28 February, Red Hat reported revenues of $18.6m (£13m), down from $20.1m (£14m) the previous quarter and off from the $22m (£15.4m) in revenue in the same period a year ago. For the fiscal year, revenues were $78.9m (£55.2m), down from $80.8m (£56.5m) the year before.

The company reported a net loss of $41.9m (£29.3m) for the fourth quarter, which included a loss of $28.9m (£20.2m) from continuing operations and additional write-offs for discontinued operations and related expenses. That compares with net losses of $24.2m (£16.9m) one year ago and $15.1m (£10.6m) in the third quarter ended 30 November. The net loss for the fiscal year was $139.9m (£97.8m), compared with a net loss of $86.7m (£60.6m) a year ago.

Red Hat said its adjusted pro forma results - before amortisation of good will, stock-based compensation and restructuring charges - showed $1m (£700,000) in net income from continuing operations for the fourth quarter, compared with an adjusted net income of $1.9m (£1.3m) a year ago.

Kevin Thompson, Red Hat's chief financial officer and an executive vice president, said the restructuring would help the company shed unprofitable ventures and increase its renewed emphasis on moving Linux into business computing.

"The enterprise is where the large opportunity for Red Hat is," Thompson said. "We need to rid ourselves of distractions to be able to take advantage of that."

To bolster its claims of increased traction in the enterprise, Red Hat announced several new customers who are making large-scale deployments of its products. They include America Online, UBS Warburg, Morgan Stanley Dean Witter,, Cisco Systems, Nortel, Dell, DreamWorks and Oracle. Red Hat began a major push last September to go after the enterprise market with its products and services.

Meanwhile, Red Hat is cutting back its embedded systems business while the economy remains soft, but will restore it when demand for embedded systems improves, Thompson said. He added that about eight to 10 workers have been moved to different areas within company as part of the retreat.

Another part of Red Hat's restructuring includes closing its network consulting group, with about 20 to 25 workers moving to other companies along with the vendor contracts they were working on. The company's overall workforce remains at about 630, he said.

Red Hat is also saving approximately $700,000 (£490,000) a year by moving its headquarters to the campus of North Carolina State University.

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