What’s up with Red Hat? Despite a recession that has bitten pretty
much everyone in the industry with the same ruthless precision, Red Hat
has managed to show six straight quarters of escalating subscription
sales. And last week, the open source company’s second quarter results
beat analyst’s expectations on earnings AND strong revenue growth.
For the details: The open source platform and services pioneer
reported net income for the quarter ending Aug. 31 of $28.9 million, or
15 cents a share, up from $21.1 million, or 10 cents a share, a year
earlier. Profits increased to 16 cents a share from 14 cents a year
earlier.
But here’s where it really gets interesting. Revenue for the quarter
climbed 12 percent to $183.6 million. That’s right, climbed. Most of
the high tech companies that have managed to dig out favorable if not
stellar quarterly profits this year did so as a result of deep
cost-cutting, not sales. Consider Oracle -- profitable but revenue down
5 percent for its recently reported quarterly earnings. IBM – earnings
also up, but revenue down 13 percent for Q2. And Cisco, which also
increased income on falling revenue to the tune of 18 percent year on
year as reported in early August.
So what’s going on? Is open source garnering more interest in a down
economy? Red Hat’s primary competition in the operating platform space
– along with its attendant services and support offerings -- is
Microsoft. This past year the folks in Redmond hit the first
financially rocky shores ever, posting a 17 percent decline in revenue
in the fourth quarter and a 3 percent decrease annually.
Part of Microsoft’s challenge stems from the constant need to feed
the upgrade beast with renewals for flagship Windows and Office. Red
Hat this year has demonstrated a knack for not only renewing existing
customers, but signing them to even larger subscriptions. Of the 25
largest Red Hat customers signed during this most recent quarter ended,
the total value of the renewal subscriptions rang in at 32 percent
higher than the original deals were worth. Customers are adding new
features and additional services and support.
Red Hat is reaching out increasingly to partners as well, announcing
this year the Red Hat Catalyst Program, which essentially validates and
certifies open source solutions that partners develop based on the Red
Hat portfolio. The company is encouraging partner-to-partner
collaboration to generate a collection of certified solutions that can
be marketed through the program.
Prevailing sentiment is that the market for open source solutions in
general, with their lower cost and less restrictive licensing, has
benefited during the recession. The advent of cloud computing could
drive even greater gains for Red Hat and its brethren as IT
infrastructure moves off-premise, out of sight of customers who really
only care if the business function they want to accomplish gets done,
not what operating system might be fueling it.
What do you think? As solution providers, has the recession changed the way your customers are embracing open source and Red Hat in particular?
Commentary 
