Revenue for the quarter was $84 million, up 38% year over year, and subscription revenue was $71.5 million, up 45% year over year, slower than last quarter's 53% increase. Now the confusion kicks in: earnings were $0.07 a share, versus expectations of $0.09 a share.
First, a stock option expense of $7.63 million knocked off $0.02 a share, and a GAAP tax rate was 37% versus 5% cash tax rate -- which most analysts were modeling -- causing an additional hit to earnings. Without those expenses, earnings would have beat analyst expectations with $0.14 a share. That being said, gross margins improved 500 basis points to 84% and operating cash flow came in at roughly $52 million, up 43% year over year, both indicators of a strong underlying business. Indeed, the company continued to extend their market share lead in servers over their bumbling competitor Novell
Look at virtualization, for example; virtualization uses software that allows one computer to function as many computers at the same time. Think of opening five to ten windows on one computer screen, and having each window be an entirely separate computer, no different than five or ten machines spread out across a room. The savings for a business in both space and fewer machine purchases are obvious, yes?
Virtualization is only estimated to make up 5%-10% of servers now, but it can be a multi-billion dollar business per Red Hat CEO Mathew Szulik. VMware, now a part of EMC
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