(Adds comments from interview with CEO)
By Jim Finkle
BOSTON, Sept 25 (Reuters) - Red Hat Inc (RHT.N), the largest publicly held company focused on Linux software services, posted 64 percent quarterly profit growth and cash flow above expectations on Tuesday, sending its shares up 5 percent.
Revenue also topped Wall Street targets as Linux-related revenue offset what the company called a disappointing performance at its JBoss unit, which focuses on programs that run Web servers.
Fiscal second-quarter net income rose to $18.2 million, or 9 cents per share, from $11.0 million, or 5 cents per share, a year earlier, thanks to strong sales of an upgraded version of the Linux operating system introduced in March.
Quarterly cash flow of $64 million topped Wall Street’s average target of $57 million, said Global Equities Research analyst Trip Chowdhry, whose own estimate was $54 million.
Revenue for the quarter ended Aug. 31 increased 28 percent to $127.3 million and topped the average Wall Street target of $125 million, according to Reuters Estimates.
Excluding some items, profit was 17 cents per share, in line with the average view of analysts.
Red Hat Chief Executive Matthew Szulik said JBoss was not meeting the goals he set for it, without giving details.
“We know we can do much better,” he said on a conference call with analysts.
In an interview, he said while he was happy with the product, the JBoss sales team has not been as effective as he had hoped at closing deals with large corporations.
Szulik said the JBoss acquisition was part of a strategy to expand the number of big-ticket deals Red Hat does. Linux is a business with a large volume but lower average sales prices.
“The sale of a Linux operating system is a different sale than (software) that’s going to run a large European national railway,” he said. “JBoss has outstanding technology. We just have to improve our routes to market.”
Chowdhry of Global Equities Research said the prospects for JBoss were dim because its software was designed to work with the Java programming language.
He said Java was losing market share as businesses embrace Ruby, a programming language that is easier to use and works with an open-source rival to JBoss known as Ruby on Rails.
Szulik said he was not worried about demand for Java slipping. Every large corporation he visits is committed to working with Java, and he just returned from a visit to South Korea and did not hear one executive mention Ruby.
Red Hat’s JBoss purchase has been controversial since it was announced in April 2006, partly because it brought Red Hat into direct competition in the Web application server market with two of its biggest partners, International Business Machines Corp (IBM.N) and Oracle Corp ORCL.O.
Several months after Red Hat bought JBoss, Oracle started offering a product similar to Red Hat Linux. While that has yet to show signs of taking share away from Red Hat, analysts say Oracle could prove a long-term threat.
Szulik says he is confident the JBoss acquisition will pay off. In each of the past four quarters, he added, JBoss has closed at least one deal worth at least $1 million.
On the conference call, Red Hat forecast third-quarter profit excluding items of 18 cents a share on revenue of $131 million to $133 million, versus average analyst estimates of 18 cents and $132.9 million, according to Reuters Estimates.
Shares of Red Hat rose to $19.83 in extended trade from a New York Stock Exchange close of $18.89.