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Red Hat beats estimates, aims for profit in 2001

The Linux leader reports narrower-than-expected losses, evidence that it is on track to turn a profit next year, company executives say.

Linux leader Red Hat Software reported narrower-than-expected losses for its past quarter, evidence that it is on track to turn a profit next year, company executives said.

Red Hat, which markets software and services based on the Linux operating system, said that losses for the first fiscal quarter 2001, excluding extraordinary events, came to $2.5 million, or 2 cents a share. Analysts expected the North Carolina company to report losses of 4 cents a share.

Revenues, meanwhile, came to $16 million, a 95 percent increase from revenues of $8.2 million in the first fiscal quarter of 2000. The figure represents an increase of 22 percent over revenues of $13.1 million in the company's fourth quarter.

Including acquisition-related costs and other extraordinary expenses, losses for the first fiscal quarter came to $14.1 million.

The stronger-than-expected numbers will likely buoy optimism that there are profits to be mined in the Linux industry. The Linux operating system is distributed on the "open source" model, in which software code is exposed to the public and can effectively be copied for free.

Robert Young Rather than earn money through royalties on software, Linux companies largely hope to earn revenues from services, consulting, training or other collateral projects related to the technology.

"If we are successful, Red Hat may become the Wal-Mart of the Linux business," Robert Young, Red Hat's chairman, said in an interview earlier this week. "We have every intention of making this a high-margin services business."

Some of these methods work, but others aren't as successful. In May, for instance, Red Hat scaled back plans to earn advertising revenues through a Linux Web site. Nonetheless, the company has allied itself with several major computer manufacturers, which will likely serve as a springboard for services contracts.

Linux stocks have enjoyed a brief but wild life on the public markets. Red Hat's stock has swung from a 52-week low of $7 to a high of above $150. Today, the stock closed up 88 cents at $23.38.

"Q1 performance represents continued execution against our plan to double revenue and become profitable in 2001 while leveraging our acquisitions to enter new markets and create new revenue streams," CEO Matthew Szulik said in a statement.