Red Hat gaining share of IT budgets; Landing bigger deals

Red Hat gaining share of IT budgets; Landing bigger deals

Summary: Red Hat's fiscal third quarter results add up to one conclusion: The company is gaining more share of corporate IT budgets.

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TOPICS: Linux, Open Source
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Red Hat's fiscal third quarter results add up to one conclusion: The company is gaining more share of corporate IT budgets.

Indeed, the company met, or beat, expectations on all key metrics: Revenue, deferred revenue, billings, deals signed and earnings. Red Hat landed larger deals and upped its outlook for the fourth quarter and fiscal 2010.

Red Hat reported pro forma earnings of $33.5 million, or 17 cents a share, a penny ahead of Wall Street estimates (statement). Including a charge related to a litigation settlement, Red hat reported net income of $16.4 million, or 8 cents a share, down from $24.3 million, or 12 cents a share, a year ago. Revenue was $194.3 million, up 18 percent from a year ago.

For the fourth quarter, Red Hat projected revenue of $191 million to $193 million with pro forma earnings of 15 cents a share to 16 cents share. Earnings are in line with consensus estimates and revenue is higher than the $190 million expected. For fiscal 2010, Red Hat projected revenue of $743 million to $745 million, ahead of its previous range of $720 million to $735 million.

Simply put, Red Hat is executing well.

Part of Red Hat's momentum can be attributed to landing big deals. Red Hat has won high-profile endorsements in the government sector with the Department of Defense and the White House. The company also landed a big deal with NTT, the large Japanese telecom. Red Hat CEO Jim Whitehurst also noted on a conference call that the company had "several wins, which include a large private cloud implementation project with a major movie studio."

These deals are a mix of virtualization management applications and the core Red Hat Enterprise Linux.

Red Hat CFO Charlie Peters highlighted deals for Red Hat's enterprise lineup as well as JBoss, its middleware suite. Peters noted on a conference call:

Our top 30 deals in the quarter included 14 deals over $1million. One, deal over $5 million and two sizable free-to-paid deals, within these top deals we saw continued growth customer deployment and traction for RHEL Advanced Platform and JBoss at 23 deals include RHEL and eight deals include the JBoss components and one deal is primarily virtualization product.

One of the top deals with large financial services from the renewed and significantly expensed infrastructure as it migrates to Microsoft Windows to Red Hat Enterprise Linux, coupled with a migration to JBoss for another java based platform. This migration path as resulted in saving of a $0.5 million to-date and they expect to serve us a $1 million a year end hardware and support cost by moving from a Windows based environment to a virtualizes Red Hat Enterprise Linux Environment.

In the server operating system wars, Red Hat is making progress against Windows servers, but the company is still being used to replace Unix overall. When an analyst asked Whitehurst about whether Red Hat was replacing Windows more frequently in the market, he said:

It’s still primarily Unix. One of our major deals was a Windows to Linux (move). We’re competitive against Windows, but the value proposition is just so extreme versus Unix. I’ll certainly say we are seeing more progress against Windows than we were a year ago. I think as people get more comfortable with the product and get a chance to demonstrate of that broader value proposition, certainly it’s an increasing mix to gets Windows, but still that would be in the minority of business.

Piper Jaffray analyst Mark Murphy said in a research note that:

(Red Hat's results are) "consistent with our global partner survey that revealed a better Q3 demand environment and an improving pace of Unix-to-Linux migrations. Finally, our customer survey work continues to indicate that Red Hat is rapidly gaining a greater share of IT budgets and taking market share from the competition.

Deutsche Bank analyst Todd Raker noted Red Hat's take on better IT spending:

We came away from Red Hat’s November quarter results encouraged that 1) the overall macro environment is improving for IT, and 2) Red Hat is re-emerging as one of the better growth companies in software. We believe it is poised to continue its strong growth profile as IT spending and server shipments rebound.

What's next for Red Hat? More of the same, with a few tuck-in acquisitions. Peters said:

From an M&A perspective, the type of targets we would look really hasn’t changed much. We're looking at technology to tuck in as compliment to our existing business. The second (area) might be something in the services space. Then the third might be something in the distribution area that helps us get into geographies that we currently don’t have a large present. Generally, these types of companies in our space are going to be relatively small.

Topics: Linux, Open Source

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42 comments
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  • 2010 will be the year of the Linux Desktop!

    I am pretty sure of that. That's right.

    Here's me dancing to a hip-hop Christmas jingle over at jib jab <a href="http://elfyourself.jibjab.com/view/YyZXO2rRf4uWGvNp?cmpid=ey_fb_self">ElfYourself</a>

    Merry Christmas Everyone.

    P.S. I had no idea I could dance like this. It's a great cardio workout too!
    D T Schmitz
    • Lets

      call it the first year of the linux desktop decade. At least we won't have to keep reiterating that it is the year of the Linux desktop every year.

      Seriously though, I'd love to see it but I don't think the masses are ready for the linux dt yet.
      Viva la crank dodo
    • I concur

      and I've been telling it for many years!
      Linux Geek
      • Not a good sign

        if you have been saying that it is the year of the Linux desktop for many years. It means you have a terrible record since you have been wrong each of those years.
        Viva la crank dodo
      • I predict 2011.

        Linux needs a little more momentum than it will get in 2010. 2011 seems more logical.
        Subsentient
    • The <i>last</i> thing we need...

      ...is for Linux to be dumbed down to the level of Windows.

      Going mass-market just for the right to brag about the number of desktops it's on isn't something Linux ought to be doing.
      Henry Miller
  • RE: Red Hat gaining share of IT budgets; Landing bigger deals

    And the next headline is going to read: "IT Departments have higher failure rate due to linux not working as promised or living up to the hype."

    I'll be sitting here LMAO as these departments realize the dangers of running linux and how it is inherently insecure with the telnet port being wide open and all. Then we'll see an increase of migrations away from linux due to the big "linux scare of 2010". Great headlines are coming. I can't wait to see them.
    Loverock Davidson
    • Merry Christmas Donovan Colbert.

      Your garbage bin overfloweth. Please empty before the wifey comes home.

      Peace and Good Will.
      D T Schmitz
      • You two deserve each other

        LD and DTS should snuggle in front of a Flash? video of a yule log playing on an iMac in the Safari browser.

        Shalom.
        Lunatic59
        • Funny (nt)

          nt
          Economister
      • Merry Christmas, D.T.S

        May Canonical continue to pay you for your presence here.

        Let's hope that Shuttleworth's stepping down doesn't result in a layoff for you.
        John Zern
    • Your prediction

      and statements are as supportable as DT's comment that 2010 is the year of the Linux DT.
      Viva la crank dodo
    • Microsoft must really hate you and your predictions...

      After all, when you declare something is going to happen, it invariably goes the other way. So, I look forward to hearing the stories about how amazing the increase in security has become because of Linux use, and how amazingly low the problem rate is.

      Great headlines indeed.
      zkiwi
    • Linus!

      Oh, Linus, quit yanking everybody's chain! Maybe you should go back to doing all the commits yourself, leave the clown car shtick to the pros...
      pgit
    • And what port number would that be ?

      Just wondering
      magcomment
    • The word is "here," not "hear."

      And the quality of your prognostication is likely on a par with your use of English.
      Henry Miller
      • Corrected, thanks! (NT)

        ***
        Loverock Davidson
    • News Flash: Telnet port open on Win2008 by default!

      I did a default install of Win2008 Server, opened the Firewall Settings, and guess what, the telnet port (23) was 'Green lighted', labeled as Telnet, open, and good to go.
      Of course, MS doesn't distribute its telnet server anymore, but nice of MS to listen to LR and get that port open. "I'm Loverock, and I made Win2008."

      BTW: Does Windows 7 include a SSH client, or is still in the '80s with just a telnet client? Windows must be the only OS on the planet without its own SSH client. Doesn't MS care about security?
      anothercanuck
      • Wrong article

        This article isn't about Microsoft Windows so we'll just go ahead and ignore your entire post.
        Loverock Davidson
        • Stupid reply

          EVERYTHING you post is about Windows - directly or indirectly.

          Guess you did not have an answer so you decided to try to evade the issue.

          Gutless.
          Economister