Red Hat Swimming Against the Tide

By Carolyn April  |  Print this article Print


Re-Imagining Linux Platforms to Meet the Needs of Cloud Service Providers

Despite a recession that has bitten pretty much everyone with the same ruthless precision, Red Hat has managed to show six straight quarters of escalating subscription sales. What gives?

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?


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