Red Hat Tops Its Records in Revenue, Sales

Continued growth in its enterprise subscription revenue helps the company's total revenue for fiscal year 2005 jumps to $196.5 million, an increase of 58 percent from 2004.

Red Hat on Thursday announced record revenue and profits for its fourth quarter and its 2005 fiscal year, which ended Feb. 28.

The Raleigh, N.C., companys total revenue for fiscal year 2005 jumped to $196.5 million, an increase of 58 percent from 2004. For the fourth quarter of 2005, the revenue was $57.5 million. This was a year-over-year increase of 56 percent and a third to fourth quarter leap of 13 percent.

/zimages/3/28571.gifRead more here about Red Hats financial standing in 2004.

The bulk of Red Hat Inc.s increase came from continued growth in its enterprise subscription revenue. This rose to $45.4 million in the fourth quarter of fiscal year 2005, an increase of 92 percent on a year-over-year basis and an increase of 19 percent on a sequential basis. For the full fiscal year 2005, enterprise subscription revenue was $147.4 million, or a 120 percent year-over-year increase.

"It appears that Red Hats business strategy of focusing on the higher-margin, higher-revenue portion of the Linux market is getting some traction. Their revenues appear strong because of this focus," said Dan Kusnetzky, vice president of system software at IDC.

Red Hat reported net income of $45.4 million, or 24 cents per diluted share for 2005, up from 8 cents per diluted share last year. For cash flow, Red Hat saw an increase of 100 percent over 2004 as its cash flow hit $122.2 million.

At the same time, Red Hat announced that it is expanding its stock repurchase plan to $250 million, and that it already has spent $100 million on buybacks.

"We are very pleased with the strong momentum of the Linux marketplace, and our business in particular," Charlie Peters, Red Hats chief financial officer, said in a statement.

"Based on publicly available information, we believe our enterprise subscription revenue run rate is more than six times that of the No. 2 Linux provider [Novell Inc.]"

George Weiss, a Gartner Group vice president, said Red Hats gains and Novells also-run status have been because of poor business execution on Novells part and "Red Hats superior, established, extremely strong position in the market."

"Linux users dont seem to be inclined to make a switch," Weiss said, adding that "Red Hat is growing at market space, while Novell is showing only incremental growth."

During the fourth quarter, Red Hat reported that it had set a new sales record by selling RHEL (Red Hat Enterprise Linux) licenses to more than 10,000 customers in a single quarter. During 2005, the company sold a record 175,000 new and renewed subscriptions. The company also released the latest version of its main operating system, RHEL 4, during this latest quarter.

In addition, Red Hat, which has not always done well in the channel in previous years, reported an increase of business coming from resellers and integrators, growing to 56 percent of orders in the fourth quarter of fiscal year 2005.

Finally, the company reported that the software and hardware applications and platforms, which include RHEL support, now number more than 1,800, an increase of more than 80 percent in the past 12 months.

Red Hat has managed this growth despite its squabbles with Unix leader Sun Microsystems Inc.

"Sun has really mislaid its cards in the marketplace by underestimating Linux and is still pushing Solaris as its strategic market of choice. Suns belated support for an inferior operating system like Red Hat Linux has not played out well," Weiss said.

"Whatever Sun does with Solaris on Opteron or opening it up really wont slow down Linux," he said. "It will protect its installed base, but the overall Linux market continues to grow at a very robust pace."

Its not just Red Hat, though. IBMs and HPs support of Linux, Weiss said, also have had a significant part to play in Red Hats gains and Suns losses. "Linux is becoming seen as a long-term, enterprise Unix strategy, and Red Hat is benefiting."

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