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Red Hat deflates Wall St expectations

Fails to show us the money

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Wall St Linux darling Red Hat was down in after hours trading Thursday after reporting a sharp drop in income on sales that grew less than expected for the fourth quarter.

Shares fell by almost two percent to $23.14 after the vendor reported a 25 per cent drop in total income to $21m for the period ended February 28, on revenue that increased 41 per cent to $111m. Earnings per diluted share fell three cents to $0.13. Red Hat missed analysts' revenue estimates of $112.6m.

Red Hat pointed to its training and services business, which grew 26 per cent to $15.2m, as one area of weakness, citing the fact that Christmas and New Year fell on work days. Chief financial officer Charlie Peters claimed Red Hat lost "two full weeks" of training revenue. Stock compensation and tax expenses were blamed for the earnings hit.

For the year, Red Hat saw income drop 24 per cent to $59m with revenue up 43 per cent to $400.6m. EPS increased fifteen cents to $0.29.

It was a tough year for Red Hat, as Oracle announced its own Linux support network for Red Hat customers, and Linux rival Novell teamed with Microsoft on sales and technology integration.

Red Hat seems to have overcome early concerns of an initial drop off in business, but that didn't mean analysts were entirely at ease. Overall subscriptions were up for both the quarter and year. Subscription revenue grew 43 per cent to $95.9m for the fourth quarter and 48 per cent for the year to $341m.

Executives, though, were probed during the quarterly analysts' conference call on length of contracts and renewal rates, the planned Red Hat desktop - due in May - and when revenue from the Red Hat Exchange partner network, announced earlier this month, will start to kick in.®

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