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April 3, 2005

Red Hat accentuates its leadership with rapid growth

Red Hat has announced rapid quarterly and annual growth for both net income and revenue based on strong demand for its Enterprise Linux operating system, strengthening its lead over Linux rivals.

By CBR Staff Writer

The Raleigh, North Carolina-based Linux distributor posted net income up 147% in the fourth quarter to $11.8m, on revenue up 56% to $57.5m, while net income for the year ended February 28, 2005 was up 231% to $45.4m, on revenue up 58% to $196.5m.

The majority of the company’s revenue growth for both the fourth quarter and full year came from subscription revenue, rather than services. For the full year, subscription revenue was up 120% to $147.4m, while services revenue grew just 7% to $45.3m.

For the fourth quarter subscription revenue was up 92% year-on-year to $46.4m as the company sold a record 175,000 new and renewed subscriptions, while services revenue actually fell slightly to $11m due to a drop in embedded development services.

Charlie Peters, Red Hat executive vice president and CFO, claimed the company had expanded its market leadership position. Based on publicly available information, we believe our enterprise subscription revenue run rate is more than six times that of the number two Linux provider, he said.

The company certainly has a sizable lead over Novell Inc, which reported revenue of $15m from its SUSE Linux business in its most recently competed quarter, ended January 31. That including $7m in revenue from SUSE Linux Enterprise Server (SLES) subscriptions and 21,000 unit subscriptions in the quarter.

That was preceded in the Novell’s fourth quarter of fiscal 2004 by total Linux revenue of $12m including SLES subscription revenue of $7m from 21,000 units, while the third quarter saw $12m in total Linux revenue and 19,000 units shipped.

That gives Red Hat a sizable lead over its nearest rival, a lead that chairman and chief executive, Matthew Szulik, was eager to put into perspective. We estimate that our international enterprise subscription revenue was more than twice the entire worldwide subscription revenue of our closest Linux competitor, he said.

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In fact, our subscription revenue from EMEA alone was larger than the reported worldwide subscription revenue of the same number two Linux provider, he added. Szulik also said that the company estimates that 50% of its quarterly business comes from existing customers, indicated the expansion of customer Linux deployment projects.

The company also announced plans to extend its stock repurchase program to purchase up to $250m of common stock, and up to $50m of senior debentures.

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