Linux brand remains strong with compelling Red Hat financial results

Commercial Linux vendor Red Hat received an early holiday gift this year when its Q3 results surpassed Wall Street expectations.

A holiday gift arrived early at Red Hat Wednesday when the company announced that its financial results for the quarter had surpassed analysts' expectations.

According to the Raleigh, N.C.-based commercial Linux vendor, the total revenue for the quarter was $73.1 million, which was an increase of 44% from one year ago. Revenue was also up 11% from the prior quarter.

Red Hat also reported operating income of $18.7 million, a 147% increase from one year ago and approximately a 57% increase from Q2.

In addition to the strong numbers, Red Hat was helped this year by a number of partnerships, including one with Computer Associates and its flagship governance offering Clarity that was finalized in September.

Red Hat also received a boost from the education arena after Smithfield, R.I.-based Bryant University announced in October that it had switched out its legacy systems in favor of Red Hat Linux running on IBM servers.

The company reported operating income of $18.7 million, representing a 147% increase from the year ago quarter and a 57% increase from the prior quarter. Net income was also up for the quarter at $23.2 million, up 114% year-over-year.

Subscription revenue was also up by 54% year-over-year, but some users who spoke with in 2005 had been wary of Red Hat's subscription model

Ram Balasubramanian, a systems administrator from Duluth, Georgia, had a few misgivings about the way Red Hat does business.

Balasubramanian, whose company migrated to Linux from Solaris about two years ago, had voiced displeasure with Red Hat's subscription-based pricing policies at the first ever Red Hat Summit earlier this year.

"The big thing about Linux to me is the kernel, and when you get a subscript service, you have to run their kernel," he said. "I think it defeats the point of Linux."

However, Balasubramanian's criticism appeared to be in the minority this year, as Red Hat's other highlights were also positive. They included:

-- Gross margin improved to 84%.

-- Cash and investments totaled more than $1.0 billion at quarter's end.

-- Annualized revenue per employee of $270,000.

For more on Red Hat:

Red Hat Summit: 'Standing on the vanguard'

Dig Deeper on Linux servers

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