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Here's How 1 Tech Stock Wins in a Recession

Anders Bylund
September 25, 2012

Red Hat (NYSE: RHT  ) runs a rare business model. Other software houses rise and fall with the economy, catching a wave whenever corporate budgets are flush with cash. The Linux vendor zigs when that traditional model zags.

The company's second quarter served as another reminder of this unusual state of affairs.

First, the usual numbers. Non-GAAP earnings stayed flat year over year at $0.28 per share. Operating cash flows, on the other hand, jumped 35% to $104 million. That would translate into $0.53 of hard-to-fudge cash income per share. That figure warms an old Fool's heart.

Total revenue rose 15% year over year to $323 million. But how did the troubled markets in Southern Europe fare? From Spain to Greece, the Mediterranean rim is under the fiscal gun right now, which makes the region a litmus test for my thesis on Red Hat.

The proof is in the Zabaglione
"Southern Europe is very strong for us," said CEO Jim Whitehurst in a one-on-one phone interview. "It far exceeded our expectations, well over 20% growth rate. I believe it was the strongest region relative to our expectations."

Why does Red Hat run counter to the rest of the industry? It's a question of deep, deep value.

Red Hat's software licenses tend to be significantly cheaper than competing products from Microsoft (Nasdaq: MSFT  ) or Oracle (Nasdaq: ORCL  ) . That's one part of the equation -- affordable software for small and me