Red Hat posted today a sharp rise in earnings during its fiscal second quarter, spurred by (you guessed it) an increase in Linux sales.

For the quarter ended August 31, Red Hat lists revenue of $127.3m, up 28 per cent from $99.7m during the same period last year. Analysts polled by Thomson Financial had expected earnings of about $125m in revenue.

"We continue to see robust demand for our open source solutions and are encouraged by our market position," said CFO Charlie Peters in a statement.

The company also reported improvements in operating margins and operating cash flow. "These performance improvements come at a time when we are continuing to invest heavily in our processes and systems as we scale globally," said Peters.

Net income for the quarter was up 64 per cent at $18.2m, compared with $11m in Q2 07. Excluding one-time items, Red Hat's income from operations totaled $17.8m, up from $9.5m year-over-year.

While Linux subscriptions took in the lion's share, training and services brought in revenue of $18.1m, compared with $14.7m in Q2 07.

On Monday, Credit Suisse downgraded Red Hat to "neutral" from "outperform" due to their forecast of organizational struggles from the company's digestion of JBoss and the transition to becoming a multi-product company. The firm's open source software watcher said Red Hat is expected to create distinct business units for each of the company's major product areas; OS, middleware and network delivery. ®

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