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Thursday, October 4, 2007

Red Hat grows fat on the profits of open source

Open source software provider Red Hat has seen a sharp rise in year-on-year second-quarter profits thanks to increased revenues from its Linux operating system subscriptions.

Total revenue for the quarter was $127.3m, (£63m), up 28 per cent on last year and seven per cent on the previous quarter. Income also rose by $2m (£1m) to $18.2m (£9m).

Red Hat customers pay for support and additional functions rather than for the basic operating system software itself. But the vendor is continuing to build its business by making more than 3,000 applications available on its Linux platform.
The rising profits were largely down to Red Hat’s subscription model, said chief financial officer Charlie Peters.

Subscription revenue was $109.2m (£54.1m), up 29 per cent year-on-year and six per cent on the previous quarter.

“We continue to see robust demand for our open source solutions and are encouraged by our market position,” said Peters.

Training and services brought in revenue of $18.1m, (£9m) compared with $14.7m (£7.3m) last year.

Plans for the second half-year include rapid growth of the application server business acquired through the purchase of JBoss this year. However, analysts warn that Red Hat is having trouble integrating JBoss because it is far removed from the firm’s core competency.

“The JBoss acquisition is not going as smoothly as anticipated, but Red Hat’s problems are nothing to do with the open source model they are standard for companies who have made big acquisitions,” said Ovum analyst Laurent Lachale.

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