Red Hat Second Quarter Revenue Soars 76% to $18.5 Million

Research Triangle Park

United States, September 14, 2000

Gross Margin Continues to Improve

Red Hat, Inc. (Nasdaq: RHAT), the leader in open source Internet infrastructure solutions, today reported revenue of $18.5 million for the second quarter ended August 31, 2000, a 76% increase over revenue of $10.5 million for the second quarter last year, and 15% higher than first quarter 2001 revenue of $16.0 million. Gross margins increased to 58% for the quarter, a 3.8 percentage point improvement over the prior quarter.

The Company reported an adjusted net loss for the second quarter of fiscal 2001 of $1.9 million, or $0.01 per share, compared to an adjusted net loss for the second quarter of fiscal 2000 of $4.3 million, or $0.06 per share. On a reported basis, the net loss was $15.7 million, or $0.10 per share, compared with a net loss of $4.8 million, or $0.07 per share, for the second quarter of fiscal 2000.

Commenting on the results, Matthew Szulik, president and CEO of Red Hat, Inc., said, "Demand for Open Source solutions is expanding globally across our lines of business, enterprise, small and medium sized business, and equipment manufacturers. We continue to execute to our plan of revenue growth while improving our operating efficiency".

Highlights for the second quarter include:

  • Acquired Wirespeed Communications Corporation, a leading developer of network and telecommunications components for embedded systems software, for about $30.5 million, extending Red Hat's strategy of providing expertise in embedded, networked and handheld devices that connect to one another over the Internet.


  • Acquired C2Net Software, Inc., developer of the popular Apache-based Stronghold secure web server, for about $42.7 million, strengthening Red Hat's offering of Internet infrastructure solutions with added security.


  • Formed an alliance with Ericsson to jointly develop a new range of consumer products and services for home communications. Red Hat and Ericsson have already developed the first product from the partnership, the Ericsson Cordless Screen Phone.


  • Entered an agreement with IBM whereby Red Hat will bundle all of IBM's Linux-based software into e-business solutions. Red Hat and IBM will jointly market, distribute and support bundled IBM Lotus, Tivoli and Red Hat software offerings.


  • Signed an agreement to provide support and maintenance for AMD's 'Hammer' family of processors.


  • Launched IA-64 JumpStart Program which provides all the software, tools, support and training needed for independent software and hardware vendors (ISVs and IHVs) to quickly develop solutions for Red Hat Linux on Intel's new Itanium IA-64 architecture.


  • Unveiled Red Hat(TM) High Availability Server 1.0, a specialized version of Red Hat Linux 6.2 that allows users to combine individual servers into a cluster, ideally suited to Web servers, ftp servers, mail gateways, firewalls, VPN gateways and other front-end IP-based applications where virtually uninterrupted service is required.


  • Providing engineering services and strategic software solutions for Kodak's embeedded product offerings.


  • Red Hat entered into an engineering collaboration agreement with Motorola resulting from Motorola's development of a high availability product based on Red Hat Linux.


  • Providing Red Hat Linux OS, installation services and support to Medical Center of Boston International (MCBI) for an Internet-based telemedicine network, which will provide diagnoses and intervention through a many-to-one doctor/patient relationship.


  • Through a donation of open source software and tools, Red Hat Launched the Red Hat University Program to accelerate the use of open source at universities around the world, an instrumental step in the adoption of open source worldwide.


  • Launched a worldwide roll-out of the first suite of Red Hat's e-learning courses which build prerequisite skills for Red Hat's Developer courses, as well as for e-commerce and advanced Web server administration.


  • International Data Corporation (IDC) named Red Hat the market leader for the second consecutive year in Linux shipments worldwide with 52.4 percent of all worldwide Linux server software shipments--more than three times the market share of its nearest competitor.


  • Additional IDC research states that Linux remains the fastest-growing server operating system, with the worldwide installed base of Linux growing at a 35 percent compound annual growth rate (CAGR) between 1999-2004.


  • Netcraft's May 2000 survey found that 72% of web sites running Linux run Red Hat Linux. The second largest distribution was 10%.
  • Red Hat Linux 6.2 was voted "Best Distribution" for the third straight year at the recent LinuxWorld Conference & Expo in San Jose, Calif.

About Red Hat, Inc.

Red Hat, the world's leading open source and Linux provider, is headquartered in Raleigh, NC with satellite offices spanning the globe. Red Hat is leading Linux and open source solutions into the mainstream by making high quality, low cost technology accessible. Red Hat provides operating system software along with middleware, applications and management solutions. Red Hat also offers support, training and consulting services to its customers worldwide and through top-tier partnerships. Red Hat's open source strategy offers customers a long term plan for building infrastructures that are based on and leverage open source technologies with focus on security and ease of management. Learn more: http://www.redhat.com

Forward-Looking Statements

Forward-looking statements in this press release are made pursuant to the safe harbor provisions of Section 21E of the Securities Exchange Act of 1934. Investors are cautioned that statements in this press release that are not strictly historical statements, including, without limitation, management's plans and objectives for future operations, and management's assessment of market factors, constitute forward-looking statements which involve risks and uncertainties. These risks and uncertainties include, without limitation, reliance upon strategic relationships, management of growth, the possibility of undetected software errors, the risks of economic downturns generally, and in Red Hat's industry specifically, the risks associated with competition and competitive pricing pressures, the viability of the Internet, and other risks detailed in Red Hat's filings with the Securities and Exchange Commission, copies of which may be accessed through the SEC's Web site at http://www.sec.gov.

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