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Red Hat to replace chief executive

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Open Source Software,
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Stephen Shankland CNET News

Published: 21 Dec 2007 15:43 GMT

The man who led Linux seller Red Hat from a newly public but largely unproven open-source company to a force to be reckoned with is giving his office to an executive largely unknown in the software industry.

In a surprise move, Red Hat said on Thursday that its president and chief executive Matthew Szulik will be replaced on 1 January, 2008 by James Whitehurst, Delta Airlines' former chief operating officer.

Szulik, who took over as chief executive from Bob Young in 1999 just a few months after Red Hat's initial public offering, said he is stepping down because of family health issues.

"For the last nine months, I've struggled with health issues in my family," Szulik said in an interview, adding that he couldn't balance that with work commitments. "This job requires a 7x24, 110 percent commitment," he said.

Szulik, who will remain chairman of the board, praised Whitehurst in a statement, saying he's a "hands-on guy who will be a strong cultural fit at Red Hat" and "a talented executive who has successfully led a global technology-focused organisation at Delta".

On a conference call, Szulik said Whitehurst stood "head and shoulders" above the other candidates interviewed for the job. Whitehurst was a programmer earlier in his career and runs four versions of Linux at home, Szulik said.

Szulik said he wasn't satisfied with more traditional tech executives who were interviewed. "What we encountered in many cases was a lack of understanding of open-source software development and of our model," he said.

During the interview, he said of the tech industry candidates: "When you take them out of the big buildings, without the imprimatur of HP, IBM and Oracle around them, they just didn't hold up."

The move was announced as Red Hat announced its results for the third quarter of fiscal year 2008. Its revenue increased 28 percent to $135.4m (£68.2m) and net income rose 12 percent to $20.3m, or 10 cents per share.

The company also raised estimates for its full year. It now expects revenue of $521m to $523m and earnings of about 70 cents per share.

According to a regulatory filing on Thursday, Whitehurst will be paid $700,000 per year with a possible bonus of the same amount. He also will be paid up to $150,000 for relocation from Atlanta.

Whitehurst worked at Delta from 2002 to August 2007. Before that, he was at the Boston Consulting Group.

Red Hat's strategy shift
In his years at Red Hat, Szulik presided over a major change in business strategy. Until 2003, its single product, Red Hat Linux, was freely available as a download, while the company sold technical support. The business depended on converting people who got the free versions into paying customers.

But its business model changed dramatically with the move to two versions. First came Red Hat Advanced Server, later to become Red Hat Enterprise Linux, which was available as a support subscription which had to be purchased for each server it runs on.

The second version was the freely available Fedora. Fedora is fast-changing, a proving ground for new features before they were fully tested. It only comes with short-term, informal support.

The elimination of the free, supported product angered some — and triggered the eventual founding of rival firm Ubuntu by Canonical's chief executive Mark Shuttleworth.

But it has been hard to argue with Red Hat's financial success.

In the quarter ended 31 May, 1999, the last before Red Hat's IPO, the company had revenue of $2.7m: a long way short of the current figure of $135.4m.

In a parting blog post, Szulik said he is proud of the strides the open-source software movement has made.

"Through our actions, the open-source community and the people of Red Hat are defining a modern economic relationship between developer and customer," he said. "Our customers and marketplace are responding, as evidenced by our financials and strong market potential. What was once considered a joke in 1998 no longer is," Szulik said.

Fending off challenges
Szulik has withstood many challenges over the years as his company grew to more than 3,000 employees. Among these challenges are the following examples:

Novell's acquisition of Suse Linux, which combined a well-known software brand with the second-placed Linux distribution. Novell has struggled financially since the acquisition but it remains Red Hat's top rival commercially.
A legal assault on Linux by the SCO Group, a former Linux seller that acquired a disputed amount of the original Unix intellectual property and sued IBM, arguing that IBM broke its Unix contract by putting proprietary Unix code into open-source Linux. The court case has largely fallen apart, and SCO is in a bankruptcy court.
The arrival of Oracle's "Unbreakable Linux" initiative, an effort to rebuild the operating system off Red Hat's publicly available source code and sell support at a lower cost.
Microsoft's intellectual property challenges. The software giant has tried castigating the free and open-source movement, then tried a softer approach. But in 2007 it reverted to a more aggressive stance with the threat that Linux customers should pay for the Microsoft patents that Microsoft believes Linux and related open-source software infringes. So far, the customers keep buying, though Linux hasn't made much of a dent on Microsoft's PC dominance.
Red Hat's acquisition of JBoss, which made open-source server software. Red Hat missed financial targets for the acquisition, but in the last quarter it signed two JBoss deals worth more than $1m.