Red Hat Profit, Revenue Outlook Top Forecasts

Red Hat issued a revenue outlook on Thursday that topped Wall Street forecasts, saying that its business software is poised for strong growth in a weak economy because it costs less than rival products.

The company also announced earnings, which sent its shares up more than 7 percent, a sharp contrast with the results issued on Wednesday by larger rival Oracle . Software sales at Oracle, the world's third-biggest software maker, fell short of Wall Street's expectations and the company blamed its woes on a weakening U.S. economy.

Red Hat said fiscal fourth-quarter 2008 net income of $22 million, or 10 cents per share, compared with $20.3 million, or 10 cents, a year earlier. Excluding special items, adjusted profit was 20 cents per share in the quarter ended Feb. 29, a penny higher than the average Wall Street forecast according to Reuters Estimates.

Quarterly revenue rose 27 percent to $141.5 million, in line with expectations.

Red Hat estimated that revenue will rise to between $665 million and $680 million in its current fiscal year, up at least 27 percent from $523 million in the fiscal year ended Feb. 29. That was was higher than the $637 million average analyst forecast, according to Reuters Estimates.

The company's best-selling product is its version of Linux for server computers, a rival to Windows Server software from Microsoft, and Unix software from Hewlett-Packard and IBM.

Red Hat distributes its software at no cost, but charges customers for upgrades, bug fixes and help desk support through subscription agreements. Customers of Microsoft, HP and IBM need to pay separately for software on top of those services.

"Often we are viewed as 'budgets are tight, Red Hat helps you take costs out,'" Red Hat Chief Executive Jim Whitehurst said in an interview. Microsoft and other rivals dispute Red Hat's claim that its products are cheaper.

They sometimes cite studies that say when one adds up the costs of their respective products, the hardware and electricity needed to run them, and consider other associated costs and benefits, the total costs of ownership are either comparable or swing in favor of Red Hat's rivals.

"You can always find an analyst that says something. Often those studies are funded by Microsoft," Whitehurst said. "Clearly the upfront costs are lower (with Red Hat)."

Oracle's Linux product is a version of Red Hat Linux that it is legally allowed to resell under its own name. Customers pay for Oracle to provide service instead of Red Hat.

But Red Hat's Linux products are not the cheapest. It faces competition from groups that distribute copies of its software over the Internet and offer informal support at either no cost or low cost. One popular version is known as CentOS.

The Raleigh, North Carolina company, which replaced its chief executive in December, said it repurchased about 3.7 million shares of common stock for about $66 million.

Peters expects the company to report non-GAAP earnings per share of 78 cents to 82 cents for the full year.

That was less than the average analyst forecast for earnings of 85 cents per share and the company attributed the shortfall to dropping interest rates, which reduced its interest income from investments.

Red Hat shares, which fell 2.9 percent in New York Stock Exchange trading Thursday, were up more than 6 percent on Friday.