Red Hat lowers losses

Taps HP For enterprise market

Red Hat Inc, the Linux software and services firm, yesterday reported that it reduced its loss in its first fiscal quarter and increased its revenue sequentially, but saw a decreased top line year-on-year as it reduced its focus on embedded systems in favor of the enterprise market.

For the three months to May 31, the Raleigh, North Carolina-based company recorded a net loss of $4.3m, compared to a loss of $42.3m in the fourth quarter and a loss of $27.6m a year ago, on revenue that was up 5% sequentially and down 9% annually at $19.5m.

The company announced at the same time that it has expanding its Advanced Server reseller deal with Hewlett-Packard Co, one of its key channels into the enterprise market. HP will be the first company to sell Itanium 2-based servers running Linux, Red Hat said. The deal also extends to all HP ProLiant servers and blade servers.

Red Hat has been increasing its focus on the high-end enterprise market, with its Advanced Server as the cornerstone of the strategy. In the first quarter, the company managed to increase its enterprise subscriptions sequentially 6% to $9.6m, down 1% year-on-year. Enterprise services were up about 10% and 44% at $7.8m.

The company's embedded systems business has been suffering as a result. Subscription revenue from embedded Linux was down 35% at $1m, flat sequentially. Last year, Red Hat announced its strategy of focusing on Unix-to-Linux migration opportunities in the high-end market, and restructured its embedded division as a result.

For the current second fiscal quarter, Red Hat now sees revenue in the $21.8m to $22.4m range, with enterprise revenue making up 90-92% of revenues and subscriptions making up 53% of enterprise revenue. The firm expects operating expenses of $16m to $16.4m and a net loss at the GAAP level of $3.3m to $3.8m.

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