* 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 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
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
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
Red Hat's profit, excluding items, of 15 cents per share
beat analysts' average forecast of 14 cents, according to
Revenue rose 11 percent to $174 million, versus the average
forecast of $172 million.
"It's slow, steady improvement, which is what you like to
see as an investor. It's more sustainable than any one-time
surge," said Jefferies & Co analyst Katherine Egbert.
Red Hat's stock is up 49 percent so far this year, making
it one of the top-performing software companies. Microsoft
shares have risen 20 percent so far this year, Oracle has risen
12 percent and the Nasdaq Composite Index has gained 12
The company forecast it will report second-quarter profit
of 14 cents to 15 cents per share on revenue of $178 million to
$180 million. Analysts expect the company to report profit of
15 cents per share on revenue of $179 million.
Red Hat also projected an operating margin of 23 percent.
The shares of the Raleigh, North Carolina-based company
fell to $20 after rising to $20.50 in extended trading. They
rose 2.5 percent to close at $20.13 on the New York Stock
(Reporting by Jim Finkle; editing by Andre Grenon)