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Closer Look Cuts Down Red Hat

Although Red Hat's (RHT) first-quarter results were on target Wednesday, investors evidently didn't like what they saw under the hood.

Shares were recently off $1.31, or 5.4%, to $22.88 on heavy volume Thursday afternoon.

In a research note published Thursday, Goldman Sachs analyst Sarah Friar pointed to decelerating billing, lower deferred revenue than in prior quarters and cash flow from operations down 4% year over year as troubling signs.

She questioned whether the Raleigh, N.C.-based Linux software maker will convince the market it can provide IT infrastructure beyond the operating system. Red Hat is an investment banking client of Goldman, which makes a market in the stock.

On a conference call late Wednesday, Red Hat President Charlie Peters attempted to explain away lower growth in deferred revenue. "When revenue accelerates very rapidly, it makes deferred revenue [growth] look smaller."

He said billings were $143 million. "Don't get too concerned about quarterly billings and revenue," Peters said.

Cash flow from operations, excluding items, was $52 million, down $2 million year on year.

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