Red Hat Inc, the Linux software and services firm, yesterday reported that it reduced its loss in its first fiscal quarter and increased its revenue sequentially, but saw a decreased top line year-on-year as it reduced its focus on embedded systems in favor of the enterprise market.

For the three months to May 31, the Raleigh, North Carolina-based company recorded a net loss of $4.3m, compared to a loss of $42.3m in the fourth quarter and a loss of $27.6m a year ago, on revenue that was up 5% sequentially and down 9% annually at $19.5m.

The company announced at the same time that it has expanding its Advanced Server reseller deal with Hewlett-Packard Co, one of its key channels into the enterprise market. HP will be the first company to sell Itanium 2-based servers running Linux, Red Hat said. The deal also extends to all HP ProLiant servers and blade servers.

Red Hat has been increasing its focus on the high-end enterprise market, with its Advanced Server as the cornerstone of the strategy. In the first quarter, the company managed to increase its enterprise subscriptions sequentially 6% to $9.6m, down 1% year-on-year. Enterprise services were up about 10% and 44% at $7.8m.

The company's embedded systems business has been suffering as a result. Subscription revenue from embedded Linux was down 35% at $1m, flat sequentially. Last year, Red Hat announced its strategy of focusing on Unix-to-Linux migration opportunities in the high-end market, and restructured its embedded division as a result.

For the current second fiscal quarter, Red Hat now sees revenue in the $21.8m to $22.4m range, with enterprise revenue making up 90-92% of revenues and subscriptions making up 53% of enterprise revenue. The firm expects operating expenses of $16m to $16.4m and a net loss at the GAAP level of $3.3m to $3.8m.

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