Ahead Of Red Hat Q3 Earnings

RHT ep 12222009

Open source solutions provider Red Hat Inc. (RHT) is set to announce its third-quarter results after the market close Tuesday. On average, 21 analysts polled by Thomson Reuters expect a profit of $0.16 per share for the quarter on sales of $188.29 million. Analysts' forecast typically excludes one-time items.

Red Hat, founded in 1993, is one of the major Linux distribution vendors. The Raleigh, North Carolina-based company provides operating-system platforms along with middleware, applications, and management products, as well as support, training, and consulting services. The company is much associated with its enterprise operating system Red Hat Enterprise Linux and had acquired open-source enterprise middleware vendor Jobs.

For the year-ago third quarter, Red Hat posted net earnings of $24.31 million and net sales of $165.33 million.

In the sequential second quarter, Red Hat's profit increased from last year, driven by continuing demand for its source products, and strong performance across all of its key metrics. The Raleigh, North Carolina-based company posted GAAP net income of $28.9 million or $0.15 per share for the second quarter, up from $21.1 million or $0.10 per share in the prior-year quarter. Second quarter total revenue was up 12% at $183.6 million compared with $164.4 million a year ago.

The company's subscription revenue rose 15% in the second quarter to $156.3 million, while training and services revenue dropped 4.6% to $27.4 million over a year earlier.

Jim Whitehurst, president and chief executive officer of Red Hat, said at the time of the second-quarter results announcement, "IT organizations continue to move ahead with purchases of high value solutions, and Red Hat is capitalizing on this demand as a result of our strong customer relationships and proven value proposition. These factors contributed to our better than expected total revenue in the second quarter."

In addition, for the second quarter, Red Hat became the newest component to be added in the S&P 500, which is considered to be the bellwether stock market index. Last month, Standard & Poor's Rating Services raised Red Hat's corporate credit rating from 'BB' to 'BB+'. The upgrade, which is the third upgrade by S&P in just a 20-month period, reflected the company's strong performance and consistent growth during a challenging global economic environment, Red Hat stated.

In the meantime, Red Hat's peer Microsoft Corp. (MSFT) has been hit hard by the economic crisis and recently announced a reduction of about 800 jobs worldwide, in addition to the 5,000 layoffs the company already announced in January this year. The world's largest software maker said the layoffs, which are part of its attempts to protect the bottom-line, spread across multiple locations and different business units. The total layoffs since January are the largest ever at the Redmond, Washington-based company's 34-year history, affecting around 6.3% of its staff.

Microsoft has also done certain pricing actions recently to increase sales. In August, the company aggressively priced its new Zune HD digital music and video player lower than similar products such as Apple's iPod Touch. The company also reduced prices of Xbox 360 Elite console and Xbox 360 Pro console. In order to get a bigger share of the online advertising market, Microsoft has announced a search pact with Internet search engine Yahoo Inc. (YHOO). The deal is expected to be sealed early 2010.

Microsoft has also appointed Peter Klein as its new chief financial officer to replace Chris Liddell, who intends to resign from the position to pursue other opportunities. Liddell will remain as an employee of the company through December 31.

For the latest first quarter, Microsoft reported a decline in its profit, as the company deferred a portion of its revenue related to the Windows 7 Upgrade Option program. The Redmond, Washington-based company reported net income of $3.574 billion or $0.40 per share, down from $4.373 billion or $0.48 per share last year. Revenues were $12.92 billion, down from $15.06 billion in the prior-year quarter.

Another competitor, Novell Inc.'s (NOVL) net loss for the recently closed fourth quarter was wider than last year, hurt by goodwill impairment and restructuring expenses. The Waltham, Massachusetts-based company incurred GAAP net loss of $256 million or $0.74 per share, compared with a GAAP net loss of $16 million or $0.05 per share a year ago. Net revenue declined to $216 million from $245 million in the same quarter last year.

RHT is trading at $29.59, down $0.15, or 0.50%, on a volume of 1.29 million shares. For the 52-week period, the company's trading range was $11.62 - $30.

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