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Updated from Dec. 18

Red Hat

(RHAT)

reported third-quarter earnings in line with Wall Street estimates Thursday, but the Linux software vendor's revenue swelled 36% from a year ago, beating analyst expectations.

In reaction to the report, Banc of America Securities upgraded its recommendation on Red Hat to buy from neutral early Friday. As of 10:00 a.m. EST, the company's stock was up $2.22, or 15.5%, to $16.50.

The Raleigh, N.C., company reported third-quarter net income under generally accepted accounting principles of $4.1 million, or 2 cents a share, up from net income of $214,000, or break-even on a per-share basis, in the year-earlier period. Revenue was $33.1 million, up 36.2% year over year and up 14.9% sequentially.

Analysts were expecting Red Hat to earn 2 cents a share on $31.4 million in revenue in the third quarter, which ended Nov. 30, according to Thomson First Call.

Red Hat also announced that it has agreed to acquire privately held storage infrastructure software company

Sistina Software

for $31 million in stock. The acquisition is expected to be completed in early January.

The company's results were released shortly before 4 p.m. EST Thursday in a filing with the

Securities and Exchange Commission.

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As the largest seller of the open-source Linux operating system, Red Hat has landed in the cross hairs of an intellectual property battle being waged by

SCO Group

(SCOX)

against

IBM

(IBM) - Get International Business Machines Corporation Report

. Earlier this year, SCO sued IBM for misappropriating SCO's Unix code in its Linux business and sent letters to Linux customers, saying they owed SCO license fees.

Red Hat asked a judge to clear it from SCO's legal challenge earlier this year, but no ruling has been issued as yet. Meanwhile, IBM countersued SCO in the ongoing legal tussle.

Red Hat also is likely to face more intense competitive pressure because

Novell

(NOVL)

recently bought Germany-based SUSE Linux, the second-largest Linux vendor.