1087423--4/29/2010--RED_HAT

related topics

{property, intellectual, protect}

{customer, product, revenue}

{system, service, information}

{product, market, service}

{acquisition, growth, future}

{competitive, industry, competition}

{condition, economic, financial}

{personnel, key, retain}

{stock, price, operating}

{tax, income, asset}

{financial, litigation, operation}

{operation, international, foreign}

{regulation, government, change}

{cost, operation, labor}

{loan, real, estate}

{product, liability, claim}

{control, financial, internal}

RISKS RELATED TO BUSINESS UNCERTAINTY Ongoing uncertainty regarding the duration and extent of the recent economic downturn and in global economic and market conditions generally could adversely affect our business, financial condition and results of operations. If we fail to continue to establish and maintain strategic distribution and other collaborative relationships with industry-leading companies, we may not be able to attract and retain a larger customer base. We have entered into and may continue to enter into or seek to enter into business combinations and acquisitions, which may be difficult to complete and integrate, disrupt our business, divert management s attention, adversely affect our financial condition or results of operations and dilute stockholder value. If we fail to effectively manage our growth, our operations and financial results could be adversely affected. We rely, to a significant degree, on an indirect sales channel for distribution of our products and services, and disruption of any part of this channel could adversely affect the sales of our products. We rely on software licensed from other parties, the loss of which could increase our costs and delay software shipments. We may not be able to continue to attract and retain capable management personnel. We depend on our key personnel that we employ, the loss of which could adversely affect our business or stock price and diminish the Red Hat brand. Our corporate culture has contributed to our success, and if we cannot maintain this culture as we grow, we could lose the innovation, creativity and teamwork fostered by our culture, and our business may be harmed. Our subscription-based contract model may encounter customer resistance or we may experience a decline in the demand for our products. If our current and future customers do not renew their subscription agreements with us, our operating results may be adversely impacted. If open source software programmers, most of whom we do not employ, do not continue to develop and enhance open source technologies, we may be unable to develop new products, adequately enhance our existing products or meet customer requirements for innovation, quality and price. If third-party enterprise hardware and software providers do not continue to make offerings compatible with our offerings, our software will cease to be competitive. We may be unable to predict the future course of open source technology development, which could reduce the market appeal of our products and damage our reputation. Because of the characteristics of open source software, there are few technology barriers to entry in the open source market by new competitors and it may be relatively easy for new competitors with greater resources than we have to enter our markets and compete with us. Industry consolidation may lead to increased competition and may harm our operating results. Our continued success depends on our ability to adapt to a rapidly changing industry as well as maintaining a strong brand. Investment in new business strategies and initiatives could disrupt our ongoing business and may present risks not originally contemplated. We must effectively develop, deliver and stimulate demand for new products and technologies in order to remain competitive. Our Red Hat Enterprise Virtualization offerings are based on an emerging technology area, and the potential market for these offerings remains uncertain. If our growth rate slows, our stock price could be adversely impacted. Security and privacy breaches may expose us to liability and harm our reputation and business. We are vulnerable to system failures, which could harm our reputation and business. If we fail to comply with our customer contracts or government contracting regulations, our business could suffer. RISKS RELATED TO LEGAL UNCERTAINTY If our products are found or alleged to infringe third-party intellectual property rights, we could be required to redesign our products, replace components of our products, enter into license agreements with third parties and provide infringement indemnification. We are vulnerable to claims that our products infringe third-party intellectual property rights because our products are comprised of software components, many of which are developed by numerous independent parties, and an adverse legal decision affecting our intellectual property could materially harm our business. We could be prevented from selling or developing our software if the GNU General Public License and similar licenses under which our products are developed and licensed are not enforceable or are modified so as to become incompatible with other open source licenses. Our products may contain defects that may be costly to correct, delay market acceptance of our products and expose us to claims and litigation. Our efforts to protect our trademarks may not be adequate to prevent third-parties from misappropriating our intellectual property rights in our trademarks. Efforts to assert intellectual property ownership rights in our products could impact our standing in the open source community, which could limit our product innovation capabilities and adversely affect our business. We are, and may become, involved in disputes and lawsuits that could have a material adverse affect on our performance or stock price. Our business is subject to a variety of U.S. and international laws regarding data protection. RISKS RELATED TO FINANCIAL UNCERTAINTY Our quarterly operating results may not be a reliable indicator of our future operating results. Our stock price has been volatile historically and may continue to be volatile. Further, the sale of our common stock by significant stockholders may cause the price of our common stock to decrease. We may lack the financial and operational resources needed to increase our market share and compete effectively. We may not be able to meet the financial and operational challenges that we will encounter as our international operations, which represented approximately 43.4% of our total revenue for the fiscal year ended February 28, 2010, continue to expand. We may be subject to greater tax liabilities. Because we recognize revenue from subscriptions for our service over the term of the subscription, downturns or upturns in sales may not be immediately reflected in our operating results. If our goodwill or amortizable intangible assets become impaired, we may be required to record a significant charge to earnings. We may be exposed to potential risks if we do not have an effective system of disclosure controls or internal controls or fail on an ongoing basis to properly address Section 404 of the Sarbanes-Oxley Act of 2002. Our investment portfolio is subject to credit and illiquidity risks and fluctuations in the market value of our investments and interest rates. These risks may result in an impairment in or the loss of all or a portion of the value of our investments, an inability to sell our investments and a decline in interest income. We are subject to risks of currency fluctuations and related hedging operations.

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1087423--4/29/2010--RED_HAT_INC