December 21, 2006 3:35 PM PST

Red Hat earnings shrug off Oracle threat

Red Hat's net income subsided in its most recent quarter, but revenue increased as the Linux seller shrugged off the arrival of Oracle as a direct competitor.

For the quarter ended November 30, the company's net income was $15.5 million, down 37 percent compared with the same period a year ago. But its revenue increased 45 percent to $105.8 million. The net income of 14 cents per share, excluding various charges like stock option expenses, beat the average expectation of 12 cents per share predicted by analysts surveyed by First Call.

"Revenue, earnings and cash flow all exceeded our expectations," said Red Hat Chief Executive Matthew Szulik in a conference call. Factoring in expenses--including $8.5 million in stock option expenses--the company's net income was 7 cents per share.

"It looks like the world is not coming to an end for you guys after all," said Merrill Lynch analyst Kash Rangan shortly afterward.

In after-hours trading, shares of the Raleigh, N.C.-based company rose $2.19, or 12 percent, to $20.15.

Addressing a major investor concern, Szulik said he expected his company to be helped, not hurt, by the arrival of competition from Oracle, which announced in October that it will sell support for its own clone of Red Hat Enterprise Linux.

"We are optimistic that our long-term competitive position is being enhanced by the participation of larger entrants," Szulik said. "The continuing loyalty shown by our customer base, particularly in light of (new competition), was evident in the third quarter."

Oracle's direct competition with Red Hat came a few months after Red Hat acquired JBoss, whose Java server software competes directly with a product from Oracle. Some analysts expressed concern about JBoss integration issues in earlier months, but Chief Financial Officer Charlie Peters said most details of the acquisition are complete.

"Sales have improved quite a bit. I would say the bulk of it (JBoss integration) is behind us," Peters said. He reiterated earlier guidance that JBoss revenue will total $22 million to $27 million from when the acquisition closed June 2 to the conclusion of the company's fiscal year at the end of February.

In October, Oracle CEO Larry Ellison said the database giant would sell support for Red Hat's Linux for half the cost Red Hat does, leading many to expect pricing pressure. Peters, though, said Red Hat already offers discounts on list prices for large or long-term deals.

"Our pricing approach this quarter has been no different from how it's been the last two and a half years," Peters said.

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net income, Red Hat Inc., JBoss, Oracle Corp., Linux seller

 

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