June 19, 2001

Red Hat proves skeptics wrong; posts a profit for Q1

Author: JT Smith

- by Tina Gasperson -
Yes, they're bragging a lot; and using phrases like "defining technology," "most productive," and "development platform of choice." But let them gloat a bit. Red Hat has earned its stint in the spotlight by doing what no other Open Source company has been able to do: turn a profit.The announcement came shortly after the markets closed on Tuesday, June 19. "Red Hat enters the world of profitability today with its Q1 earnings announcement." With this milestone, the company that most of the world most closely identifies with Linux is saying in no uncertain terms that it is "possible to make money as an Open Source company."

At least that's what Red Hat CEO Matthew Zulich believes, and it looks like he may be right. Red Hat is claiming $600K of adjusted net income for the first fiscal quarter of 2002, and revenues of $25.6 million, which is an 18% increase over last year at the same time. "We are in an extremely healthy financial position, in an uncertain economic environment," said Kevin Thompson, chief financial officer for Red Hat.

Red Hat stressed that it is rescinding income projections that it made at the Q4 conference call, and will not offer any new projections until it can familiarize itself with a new longer sales cycle created by the surge to profitability. This move frustrated analysts waiting for information to feed to the market about future prospects, but makes Red Hat look good in an era when market investors are feeling "once bitten, twice shy" about rosy income forecasts in the tech sector. Previously, analysts were predicting profits of one cent per share at the end of Q2 and two cents per share at the end of Q3.

Tim Buckley, the chief operating officer, cited successes in enterprise, embedded, Open Source services, and international markets as key to current and future growth for Red Hat. "Companies are moving past the proof of concept phase," and into serious migration. He stressed the importance of corporate partnerships in creating "joint sales efforts" with companies like Dell, IBM, Compaq, and Intel.

Nobody said anything about Microsoft, but everyone knew what Buckley was thinking when he said, "Proprietary vendors are failing to keep pace with the rate of innovation" coming out of Open Source companies like Red Hat.


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