Updated from 5:28 p.m. EDTRed Hat ( RHAT) squeezed out a penny-a-share profit in its fiscal first quarter, the first per-share gain the Linux software company has reported in several years, the company said after the close on Tuesday. In the May quarter of fiscal 2004, Red Hat earned a net income of $1.5 million, or 1 cent a share, on sales of $27.2 million, according to generally accepted accounting principles. A year ago, the company lost $4.6 million, or 3 cents per share, on sales of $19.5 million. The company generated $5.5 million in positive cash flows from operations in the quarter, but reported a net operating loss of $1.1 million, compared to a net operating loss of $7.2 million a year ago. The company reported other income of $2.5 million, enough to pull it out of the red. Red Hat's earnings were in line with analysts polled by Thomson First Call, but a bit below expectations of $27.3 million in revenue. The company said that it expects net income of about a penny a share in the current, or second quarter, and to report revenue ranging from $28 million to $28.5 million, roughly in line with expectations. If Red Hat hits that mark, it will be an improvement of about 24% over last year, attributable in part to the company's continued shift from consumer to enterprise sales. Hanging over Red Hat's business is the shadow of a lawsuit against IBM ( IBM) by the SCO Group ( SCOX) that threatens the legal status of Linux, the open-source operating system. Filed in March, the suit alleges that IBM violated its agreement with SCO by adding UNIX code (which SCO licenses) to Linux, which isn't formally controlled by anybody. If SCO's claims prove to be true, companies using and selling various versions of Linux are potentially at risk of also being liable for violating SCO's intellectual property rights. On Monday, SCO amended its complaint, saying it was revoking IBM's license to use AIX, IBM's widely distributed version of UNIX. The company said in its complaint that IBM customers no longer have the right to use AIX. In a call with analysts after the earnings announcement, Red Hat CEO Matthew Skulzik reassured customers, saying "Let me state clearly that we are not a party to any suit. We are confident that we have every right to distribute Red Hat Linux." Although the AIX and Linux questions are somewhat different, the action is "another shot across Linux's bow," said analyst Victor Raisys of the SoundView Technology Group.
Most analysts see the suit as little more than a nuisance to IBM, but the effect on smaller companies, like Red Hat, is potentially more significant.Red Hat finished the regular trading day at $8.09 on Tuesday, a gain of about one penny, and added another 41 cents after hours.