March 19, 2002 5:35 PM PST

Red Hat scales down to think big

Red Hat, the top seller of the Linux operating system, has restructured to focus on big customers while cutting jobs elsewhere, executives said Tuesday.

Red Hat eliminated its network consulting group, which the company acquired for $47 million in February 2001 when it bought Planning Technology, said Chief Financial Officer Kevin Thompson. He spoke in a conference call Tuesday to report financial results for the company's fourth fiscal quarter of 2002, which ended Feb. 28.

Including restructuring and other charges, Red Hat had a net loss of $28.9 million for continuing operations, or 7 cents per share, on revenue of $18.6 million.

Excluding amortization of goodwill, restructuring charges and stock-based compensation, Red Hat had net income of $1 million, or 1 cent per share. That matched the expectations of analysts surveyed by First Call but was a decline from the $1.9 million in net income in the year-ago quarter.

Red Hat reported revenue of $18.6 million, a 7 percent drop from $20.1 million in the same quarter a year ago, a figure that excludes revenue from the now-discontinued network consulting business.

The company is paring down to focus on selling its operating system products and services to large corporate customers. To show evidence that these conservative customers are convinced of the merits of Red Hat and Linux, the company said it's won contracts at Morgan Stanley, AOL Time Warner, UBS Warburg, Credit Suisse First Boston, Cisco Systems, Amazon.com, Dell Computer, GE Medical, Lawrence Livermore National Laboratory, Nortel Networks, British Petroleum, Deustche Bank, Deustche Post, NTT, DreamWorks SKG and Siemens.

Also as part of its focus on big-business customers, Red Hat will release its Advanced Server product, Chief Executive Matthew Szulik said during the conference call. Shipments of the high-end version are expected to begin in April, the company said.

Linux has been at the center of a revolution to topple Microsoft and other established software companies through the shared-development model of open-source programming. But the movement, while still strong among programmers, has waned as a foundation for start-ups.

Red Hat on Tuesday also announced that it has cut staff in "embedded" work, which focuses on selling programming tools, Linux and another open-source operating system called eCos for non-PC computing devices such as network routers.

Szulik said the embedded division "did not perform as expected," blaming the shortfall on economic conditions and the resulting cuts at chip companies that buy embedded products and services. Red Hat acquired its embedded business when it bought programming toolmaker Cygnus Solutions in 1999.

Red Hat has acquired several other companies in the 11 quarters it's been a publicly traded company, including e-commerce software maker Akopia, network gear maker WireSpeed, publishing software maker Ars Digita, e-commerce software maker Hell's Kitchen Systems and Web server software seller C2Net.

As part of Red Hat's restructuring, some employees were transferred to the core enterprise business, Thompson said. The company now has a total of 620 to 635 employees, he added.

Red Hat also moved its headquarters from Durham, N.C., to Raleigh, N.C., to save $700,000 in real estate costs.

 

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