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Red Hat reports Q1 profit

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CIOL Bureau
New Update

Reed Stevenson

SEATTLE: Red Hat Inc. reported a seven-fold increase in quarterly profit on a 50 percent gain in sales that still fell short of lofty Wall Street revenue expectations for the Linux software distributor, prompting a decline in its shares.



Raleigh, North Carolina-based Red Hat also forecast current-quarter revenue that fell short of investor expectations, and the stock tumbled 10 percent in after-hours trade, touching $20.13 from a Nasdaq close of $22.39.



Red Hat, which provides software update and support services for the Linux operating system, reported a net profit of $10.7 million, or 5 cents per share, for its first quarter ended May 31, compared with net income of $1.5 million, or 1 cent, a year earlier.



That topped the average analyst expectations for a profit of 4 cents per share, according to Reuters Estimates.



Revenue rose to $41.6 million from $27.2 million a year earlier, but fell short of the average Wall Street expectation for quarterly revenue of $43 million.



Analysts have been warning that valuations for Red Hat and other Linux-related shares had been getting too high after a spectacular rally that saw Red Hat's share price quadruple from early 2003.



Red Hat Chief Executive, Matthew Szulik said investors were being hasty in selling off the stock, saying that the company's subscription growth, strong operating margins and cash flow pointed to sustained growth in the coming quarters.



"It'll be a buying opportunity Friday morning," Szulik said in an interview.



Red Hat provides update and support services for its version of Linux, which can be copied and modified freely, unlike proprietary software such as Microsoft Corp.'s Windows operating system.



That has made Linux, particularly the version offered by Red Hat, attractive to large companies seeking to lower their costs, analysts have said.



Red Hat shares touched $28.84 in early June, their highest level since September 2000, but have tumbled since in a move that accelerated this week when chief financial officer Kevin Thompson said he would step down to pursue other interests.



For the second fiscal quarter, Red Hat said it is expecting to post net income of $10 million to $10.2 million, or 5 cents per share on revenue between $47.5 million and $48.1 million.



Analysts, on average, had been expecting Red Hat to report a profit of 5 cents per share on revenue of $48.5 million.



© Reuters

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