Linux leader Red Hat posted its fiscal second-quarter results after the market closed Tuesday and said that it earned $18.2 million, or nine cents a share, no Microsoft but up 64% year-over-year, on revenues of $127.3 million, up 28% year-over-year and up 7% quarter-over-quarter.

Revenues, largely attributable to Red Hat's RHEL5 upgrade introduced in March, were slightly better than Wall Street expected and Red Hat hit the Street's anticipated pro forma EPS calculation of 17 cents on the button.

Subscription revenues came to $109.2 million, up 29% year-over-year and up 6% sequentially. Deferred revenues hit $337 million, up 33% year-over-year and up 4% sequentially.

The company's non-GAAP cash flow worked out to $65.7 million, up 43% over last year and up 22% over last quarter. The company's operating margin also improved although it continues "to invest heavily in our processes and systems as we scale globally," CFO Charlie Peters noted in a canned statement.

Red Hat, which continues to buy back its stock and debentures, has $1.3 billion in the bank.

The company is predicting sales of $131 million-$133 million this quarter against a tougher compare and pro forma revenues of 18 cents. As previously ordained, Red Hat will keep on investing in infrastructure and process refitting, expecting its goals could take three years to realize. It is also spending on staffing and facilities.

Asked about the macro economy, Red Hat said there was pressure on IT spend, a situation that open source is contributing to, but it doesn't expect any rise in spending.

Ahead of the returns, Credit Suisse downgraded Red Hat from Outperform to Neutral and lowered its price target from $27 to $22 on the theory that field execution and meaningful JBoss acceleration "won't materialize and deliver the anticipated upside."

It hears the organization "continues to be in a state of flux as the company struggles through its transition to a multi-product company" and that it's "contemplating a broader reorganization to create new business units around each of the main product areas. We worry," it said, "that this could cause disruption to the business."

It also hears that Red Exchange isn't working.

As you might imagine many of the company's remarks during its conference call Tuesday were designed to address Credit Suisse's downgrade, while Credit Suisse now simply feels its thesis was "reinforced" and blames JBoss integration missteps for "capping the potential in what should be a faster-growing overall business."

CEO Matthew Szulik allowed that JBoss sales weren't meeting expectations but felt they could double, double even RHEL sales, confident that they would accelerate in the second half. (Credit Suisse says don't hold your breath.)

Red Hat is looking for middleware partners but says that JBoss requires an "integrated" consultative pitch - rather than a product approach - to higher-ups in the enterprise, which translates into a longer selling cycle that Red Hat claims will mean bigger deals.

It is unclear whether JBoss is hobbled by the shift from the Java programming language to Ruby on Rail noticeable even at Sun, the author of Java. During the conference call Szulik said that JBoss was the subject of at least one million-dollar deal in each of the last four quarters.

Red Hat said in its efforts to become a billion-dollar company, a vision it's been working on for 18 months, it's moving to a decentralized line-of-business model that would see the creation of infrastructure, middleware and online services units run by general managers who would own product marketing, explaining why Red Hat has set up a corporate marketing function run by newly installed marketing chief Michael Chen.

It offered no other details other than the fact that the online services would include RHX, but Red Hat did volunteer that the reorg could involve a new "overlay" sales team.

The company recently closed a deal with Sweden's government-owned chain of 900 pharmacies, which replaced all of its servers with Red Hat.