Red Hat's Solidly In The Black

Although widespread adoption of a desktop version of the open-source Linux operating system seemed like little more than a pipe dream a year ago, the strong quarterly financial performance Red Hat Inc. posted Thursday provides a solid foundation for the Linux market to continue its surge beyond servers.

For its first quarter, ended May 31, Red Hat reported net income of $10.7 million on revenue of $41.6 million, up from net income of $1.5 million on $27.2 million in revenue a year ago. This was the same quarter that Red Hat formally introduced Red Hat Desktop, an operating system that includes Evolution E-mail, Mozilla browser, OpenOffice 1.1 office productivity, GAIM instant messaging, and Agfa Monotype font software.

Although it's too early to equate successful financials with a desktop strategy, Red Hat is positioning itself to deliver Linux to a number of different platforms, including servers, desktops, and smaller devices that require an embedded version of the operating system. Because Linux runs on a variety of form factors and platforms that businesses use, "the base of demand is expanding across the enterprise," Red Hat chairman, president, and CEO Matthew Szulik, said during Thursday's earnings announcement. In all, he said, "we're seeing expanding global demand for open-source software."

Szulik said during the call that over the next six months, his company will standardize 8,400 desktops at German insurance company Landwirtschaftlicher Versicherungsverein Mnster (LVM) A.G. on Red Hat Desktop. This comes as the city of Munich in Germany gets set to start its own Linux migration project on July 1.

Red Hat's quarterly subscription-based revenue rose to $30.4 million, from $17.4 million from the same quarter a year ago. Services-based revenue rose more evenly, to $11.2 million, from $9.8 million for the year-ago quarter.For its second quarter, Red Hat anticipates subscription revenue of $36.6 million to $36.9 million, while services revenue is expected to dip slightly to between $9.9 million and $10.2 million. Szulik attributes a decline in services-derived revenue to a normal slowdown during the summer months. Embedded Linux revenue is expected to hold steady at about $1 million.