UPDATE 2-Red Hat profit rises, bucks tech industry trend

* Q1 EPS ex items 15 cents vs Street view 14 cents

* Q1 revenue $174 million vs Street view $172 million

* Operating margin rises to 23.4 percent

* Shares mixed in extended trading

By Jim Finkle

BOSTON, June 24 (Reuters) - Software company Red Hat Inc (RHT.N) reported a 7 percent rise in quarterly profit onWednesday, bucking an industry trend of declining earnings, as margins widened under the scrutiny of its cost-conscious CEO.

Operating margin rose to 23.4 percent from 21.8 percent a year earlier, after excluding stock compensation and amortization expenses. That was better than the 23 percent the company projected three months ago.

Profitability has been improving since last year when the world's biggest provider of Linux software tapped former Delta Air Lines Inc (DAL.N) executive James Whitehurst as its CEO. He has imposed tight cost controls, drawing on experience squeezing costs out of the struggling, low-margin carrier.

"I know how to put a lid on costs where you need to. I've done a lot of that in my life," Whitehurst said in an interview.

Red Hat, whose rivals include Novell Inc (NOVL.O) and Microsoft Corp (MSFT.O), sells subscriptions to maintenance contracts that provide upgrades, help-desk support and bug fixes for Linux software.

Net income rose to $18.5 million, or 10 cents per share during the fiscal first quarter ended May 31, from $17.3 million, or 8 cents, a year earlier.

Red Hat claimed the modest profit increase after a string of bigger technology companies posted earnings declines. In its most recent quarter, No. 1 software maker Microsoft's net income dropped 32 percent from a year earlier. Oracle Corp (ORCL.O) said on Tuesday that profit fell 7 percent.

Red Hat has weathered the recession well partly because it sells its products via subscriptions that lock in investors over multiple years.

Whitehurst said that over the past few years Red Hat has only lost one major client -- Oracle Corp (ORCL.O), which stopped using his company's software when it started selling a rival product.

He said Red Hat's Linux operating system is taking share away from Sun Microsystems Inc's (JAVA.O) Solaris operating system and its JBoss middleware is winning customers away from Oracle.

Red Hat's profit, excluding items, of 15 cents per share beat analysts' average forecast of 14 cents, according to Reuters Estimates.