RALEIGH – Shares of Red Hat, which recently sold above $29, continued their sharp drop in after-hours trading Thursday.

The price fell to $20.59, or some 8 percent, after its closing bell price of $22.39. That figure represented a 36-cent drop on the day.

Red Hat’s drop continued in regular trading Friday, closing down 10 percent, or $2.29, to finish at $20.10.

Analysts told various wire services the reason for the sellout was primarily because Red Hat missed the revenue estimate for the most recent quarter. Analysts had predicted 4 cents a share earning and $43 million in revenue.

But according to Thompson Financial, most analysts covering Red Hat remain bullish. Six rate the stock a “strong buy”, six others list it as a “buy” and eight rate it as a “hold”.

Red Hat (Nasdaq: RHAT), which disclosed on Tuesday that it would beat the Street with 5 cents a share earnings, announced after the markets closed Thursday that revenues were $41.6 million and net income was $10.7 million.

The stock dropped even though the quarterly report documented a 53 percent growth in income over a year ago plus $30 million in cash flow.

Revenues were also up 13 percent from the previous quarter.

“Red Hat continued to show consistent execution in the first quarter of fiscal 2005, as evidenced by a strong sequential growth in subscription volumes, gross margins, and operating margins”, stated Kevin Thompson, executive vice president and chief financial officer. “Cash flow from operations once again remained strong, representing 72 percent of total revenues in the quarter.”

However, Thompson’s own announced resignation on Monday set off four days of bad news and press for Red Hat. The stock sellout continued even though Red Hat Enterprise Linux subscriptions hit 98,000 – an increase of 13 percent for the quarter. Renewal rates also remained strong at 85 percent, and the company said gross profit magins set a record of 80 percent. The margin for enterprise subscriptions was 93 percent.

Red Hat took the unusual step of issuing positive earnings guidance on Tuesday – to no avail.

Cisco and Nortel as partners?

Bitter enemies and competitors Nortel and Cisco working together as partners? Could be.

John Chambers, CEO of Cisco, journeyed to Nortel’s backyard in Toronto this week and said in a speech that working with Nortel appealed to him.

“I believe in strategic partnerships. I would love to have Nortel as a partner,” Chambers said in response to a question, according to Forbes.com. “I believe going to market together is the way of the future.”

For its part, Nortel said there had not been talks, according to Reuters. But later Friday, Nortel did confirm there had been discussions.