Family Crisis Forces Red Hat CEO to Resign

 
 
By Steven Vaughan-Nichols  |  Posted 2007-12-20
 
 
 
In a move that caught even Red Hat senior staffers by surprise, the Linux company announced on Dec. 20 that long-time president and CEO Matthew Szulik is resigning.

He will be replaced by James M. Whitehurst, a former Delta chief operating officer, as of the first of next year.

Prior to the announcement there was no public hint that Red Hat was considering changing its leadership. However, the company acknowledged that Red Hat's board had been looking for some time for a replacement for Szulik.

"After an extensive search, Red Hat has selected a talented executive who has successfully led a global technology-focused organization at Delta," said Szulik in a statement. For now, Szulik will remain as chairman of the Red Hat board.

The explanation for this surprising move was that Szulik felt he had to leave to attend to family health matters. Sources close to Red Hat said that Szulik's wife is quite ill.

In a Red Hat CEO blog entry, which hasn't been published yet but was provided to Linux-Watch early, Szulik wrote, "I take pride when customers and industry types comment to me that the people of Red Hat are 'different.' Not like the [robots] who have come to dominate the industry of technology. Through our actions, the open source community and the people of Red Hat are defining a modern economic relationship between developer and customer. Collaboration, Transparency, and value delivered."

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In a press statement, William S. Kaiser, lead director of Red Hat's board, said that "The Board is delighted that Jim Whitehurst will serve as CEO. We are confident that he will bring a combination of strategic insight and operational excellence needed to sustain growth while continuing to deliver industry leading customer service. His experience with large, global companies will be essential as Red Hat continues to scale to $1 billion in revenue and beyond."

During the Red Hat financial earnings call on the same day, Szulik seconded this vote of confidence. "Jim is a hands-on guy who will be a strong cultural fit at Red Hat." The disclosure about Szulik's departure came as Red Hat reported $135.4 million in revenue for its third fiscal quarter, which ended Nov. 30. This is an increase of 28 percent from the equivalent 2006 quarter and 6 percent from the second quarter of 2007.

Drilling down, RHEL (Red Hat Enterprise Linux) subscriptions represented the bulk of Red Hat's income. Red Hat's total RHEL income was $115.7 million. That brings RHEL's income up 30 percent year-over-year and 6 percent sequentially. Net income for the quarter came totaled $20.3 million. That works out to a dime per diluted share. Last quarter saw 9 cents per diluted share and 7 cents per diluted share in the equivalent 2006 quarter.

When asked why an operational executive from an airline company was being brought to an open-source technology company, Szulik replied, "We were looking for someone who could give us successful leadership with strategic vision." In addition, he said that Whitehurst is a "technically savvy executive, who used to run Slackware, [arguably the first Linux distribution]. He gets Linux."

Not everyone is convinced that Whitehurst is a good choice for Red Hat. In an e-mail interview, Gordon Haff, senior analyst for research house Illuminata, said, "He clearly has experience with an operationally very complex business. But one would have to look awfully hard to see the sort of innovation at old-line carriers like Delta that tends to be so important in technology companies," Haff said.

"Companies like Delta have been far more about cutting costs and cutting service than getting customers excited about using them (contra JetBlue). Maybe he'll do a great job at Red Hat, but he's certainly not an obvious choice," said Haff.

Whitehurst has a bachelor's degree in computer science and economics from Rice University. He is also a graduate of the London School of Economics and has an MBA from Harvard.

During his time at Delta, which began in 2002, the airline went into chapter 11 bankruptcy. The company emerged from bankruptcy in 2007. Whitehurst left Delta after being passed over for promotion to CEO earlier this year. Before coming to Delta, Whitehurst was a vice president and director of The Boston Consulting Group, a global business consulting firm. He takes the wheel at Red Hat on Jan. 1.

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