Red Hat Partners with HP as It Narrows Losses

by Timothy Prickett Morgan

Commercial Linux distributor Red Hat says that it has signed an expanded partnership with Hewlett-Packard that will see the two companies work together to put what they claim will be the first integrated Itanium 2 servers and workstations running the 64-bit version of Linux into the market. Red Hat's Linux Advanced Server edition, which is tuned for multiprocessor machines that scale from two to eight processors, is at the heart of the deal.

The relationship that the two vendors forged calls for Red hat Linux Advanced Server to be certified and preconfigured on HP's complete line of ProLiant tower, rack, and blade servers using Pentium III and Pentium 4 processors as well as on its Itanium 2 servers and workstations. The deal also calls for HP and Red Hat to collaborate on research, development, and marketing of future Linux products, although exactly what these might be is unclear. Presumably this means future Itanium generations, including the "Madison" and "Deerfield" kickers to the "McKinley" Itanium 2s, which are due in 2003, and the "Montecito" generation from 2004 and the "Chivano" generation in 2005 or 2006.

HP says that it believes it will be the first vendor out the door with Itanium 2 machines running Linux, ahead of IBM and Dell . Reports in the press pegged deliveries of the products in the early fall, which, if true, means that Itanium 2 shipments have slipped. The Itanium 2 is widely expected to be announced in July, and Intel is beginning to brief analysts on the announcement date, shipment date, and pricing for its second generation 64-bit Itanium processors.

In a separate announcement, Red Hat reported its first quarter results for fiscal 2003, ended May 31. The company says that revenues were down 8.6 percent to $19.5 million compared to last year's fiscal 2002 first quarter, but were up 5 percent sequentially from the fiscal 2002 fourth quarter ended February 28.

Red Hat breaks down its revenue into two categories: software subscriptions and services. Within these categories, Red Hat breaks down its revenue streams into two subcategories: revenues from sales of its enterprise desktop and server software and services and revenues from embedded markets, where companies put Red Hat software into their own products. On the subscription side of the accounts, enterprise sales accounted for 90 percent of the companies sales in the fiscal 2003 first quarter, down about 1 percent from last year. Sales of embedded products were just above $1 billion in the quarter, down a whopping 35 percent. On the services side of the accounts, enterprise services increased 43.8 percent to $7.8 billion, but embedded services plummeted 77 percent to just over $1 billion. Total services revenues were down 11 percent to $8.9 billion. The company reported an operating loss from operations of $3.7 billion, down from the $4.6 billion loss it booked this time last year. Income from investments was $2.9 billion, which narrowed Red Hat's losses to $829,000 in the quarter. With charges from acquisitions, amortization of goodwill, and other things thrown in, Red Hat reported a net loss of $4.3 million, which is a far cry better than the $27.6 million loss it booked this time last year or the $42.3 million loss it booked in the fourth quarter of fiscal 2002.

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