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Red Hat tops estimates as sales surge

Red Hat (Nasdaq: RHAT) nearly doubled its first quarter sales from a year ago and reported a smaller-than-expected loss.

After market close on Thursday, Linux bellwether Red Hat reported a first quarter operating loss of $2.5 million, or 2 cents a share. That loss figure adjusts for non-cash, merger, acquisition and other expenses. In the same quarter a year ago, Red Hat reported an operating loss of $3.8 million, or 8 cents a share.

Earnings tracking firm First Call Corp. predicted a loss of 4 cents a share in the quarter.

Including merger, non-cash and other items, Red Hat reported a loss of $14.9 million, or 10 cents a share. Revenue was up $16 million in the quarter, up 95 percent compared to $8.2 million a year ago, and up 22 percent from fourth quarter sales of $13.1 million. Subscription revenue accounted for $8.5 million of Red Hat's sales tally, followed by services ($6.26 million) and Web sales ($1.23 million.)

Gross margins improved to 54 percent for the quarter ending May 31.

In a statement, CEO Matthew Szulik said the company is executing well and working toward its goal to double revenue and become profitable in calendar 2001. On Red Hat's fourth quarter conference call, officials projected the company would be profitable by the end of 2002. First Call had projected Red Hat to break even in the November quarter of 2002.

"The operating loss will decrease for the balance of 2000 until we reach profitability in 2001," said Harold Covert, Chief Financial Officer.

Because of a seasonal slowdown, Covert said revenue growth in the second quarter will be up 75 percent in the next quarter. The third and fourth quarter sales figures will approach Red Hat's 100 percent growth goal.

During the first quarter, Red Hat announced a slew of deals and strategic alliances. It closed the acquisition of Bluecurve, unveiled a marketplace featuring vendors such as Dell (Nasdaq: DELL), Compaq (NYSE: CPQ), IBM (NYSE: IBM), Oracle (Nasdaq: ORCL), Rackspace.com and Zonetrader.com. Red Hat Linux also gained traction via partnerships with IBM, Dell and Intel (Nasdaq: INTC).

At the end of the first quarter, Red Hat had about $106 million in cash and cash equivalents. Red Hat competes with Caldera Systems (Nasdaq: CALD) and Corel (Nasdaq: CORL). It also competes with VA Linux (Nasdaq: LNUX), primarily a hardware vendor, on some fronts.


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