Red Hat: Big bucks, big Linux

Red Hat: Big bucks, big Linux

Summary: Red Hat's second quarter was another roaring success no matter by any standard.

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TOPICS: Linux, Cloud
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Who says you can't make money from Linux? Not Red Hat!

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In its 2013 second quarter, Red Hat saw total revenue for the quarter of $374 million. That was an increase of 16 percent in US dollars from 2012's second quarter. Subscription revenue for the quarter was $327 million, up 17 percent in U.S. dollars year-over-year.

“We are a market leader for new innovations based on open source technologies that are driving the transformation of the data center toward an open, hybrid cloud infrastructure. ” stated Jim Whitehurst, Red Hat's President and CEO during the earnings conference call.

Besides its flagship product Red Hat Enterprise Linux (RHEL), Whitehurst also cited Red Hat's recent introduction of its infrastructure-as-a-service (IaaS) cloud, RHEL OpenStack Platform as leading to a still brighter future.

Whitehurst added that "The combination of OpenStack with our platform-as-a-service (PaaS), open software-defined storage and cloud management solutions create a compelling road map for our customers in the move to cloud computing.”

Generally accepted accounting principles (GAAP) operating income for Red Hat's second quarter was $56 million, up 11 percent year-over-year.   After adjusting for stock compensation, amortization of intangible assets and facility exit expenses, non-GAAP operating income for the second quarter was $94 million, up 19 percent year-over-year. For the second quarter, GAAP operating margin was 14.8 percent and non-GAAP operating margin was 25.2 percent.

Net income for the quarter was $41 million, or $0.21 per diluted share, compared with $35 million, or $0.18 per diluted share, in the year ago quarter.  After adjusting for stock compensation, amortization of intangible assets and facility exit expenses, non-GAAP net income for the quarter was $68 million, or $0.35 per diluted share, as compared to $55 million, or $0.28 per diluted share, in the year ago quarter.

This meant that Red Hat's earnings per share (EPS) of 0.35 was two cents higher than analyst estimates.

“We delivered mid-to-high teens growth across several financial metrics including revenue, non-GAAP operating income and operating cash flow,” stated Charlie Peters, Red Hat's Executive Vice President and CFO in a statement. “These results were driven in particular by strong subscription revenue growth, which was up 17 percent in US dollars."

The bottom line is that Red Hat is doing very well indeed.

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Topics: Linux, Cloud

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31 comments
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  • Linux Is Massively Deflationary

    I remember a Red Hat guy saying at one point that, for every $1 they make, they take $10 from competitors.

    In other words, Red Hat may only be a $1 billion company, but it is inflicting major damage on much bigger competitors.

    Now you know why proprietary companies are absolutely terrified of Open Source.
    ldo17
    • Sounds about right...

      It also means that the customer has $9 more to spend on expansion...

      Instead of the legal department...
      jessepollard
    • Oracle probably hit worse

      Our slowaris boxes are gradually migrating to rhel so I suspect red hat is taking business away from oracle. If anyone was guilty of overcharging it was Sun, and now Oracle.
      otaddy
    • The kiss of death of OSS

      You are right, economic opportunities Open Source Software touches tend to die. When Linux grows in a particular software sector, it practically vanquishes the sector. OSS will drum up business, but this tends to be a fraction of the business which was present before. E.g. OSS took out UNIX OS vendors, word processor vendors, OS vendors in the mobile space, and several other areas. This has resulted is significant loss of jobs, investment, taxes etc. If you are a developer, you should be scared of OSS and its kiss of death effects.

      Look at Android. No one makes significant amounts of money from Android besides Samsung, which is a formidable competitor in the Android space. The same thing is true in server OSs where only MS has survived the Linux onslaught. Unless a company is powerful enough to spin a protective environment around it, it becomes toast trying to compete against OSS, or winds up being feeble trying to make money from OSS.

      The vast majority of developers do not make money from Android. The vast majority of OEMs do not make much money from Android. HTC bought into the illusion that it could regain its former glory by fielding what many regard as the best Android smartphone. But alas, HTC is continuing its slide down the financial tubes. Bill Gates, Steve Ballmer, and other MS executives dare not repeat what they said originally about Linux / OSS - that it is a cancer on the computer industry. That is fine; I'll say it for them: OSS is the great cancer on the computer industry.

      Quite frankly I believe antitrust laws should be passed against companies which introduce OSS into software sectors to undermine or eliminate competition. I believe that is what IBM did against its UNIX competitors (and also MS), and I believe that is what Google has done in the mobile space.

      P. Douglas
      P. Douglas
      • So....

        I guess you think legislation should prevent Microsoft from offering a free browser and free anti-virus software? Clearly the pricing on those offerings is no less harmful to competitors.

        No. People have the right to charge what they want for their intellectual property, including $0. Just because it makes it difficult for the competition, does not imply an anti-trust action. Your argument would hold more water if it was the intent to raise the price once competition is dead, but that's not the way OSS works.
        rwwff
        • @rwwff

          "I guess you think legislation should prevent Microsoft from offering a free browser and free anti-virus software"

          Actually, he was talking about open source software and you are talking about free software. Both are different.

          However, I do not agree with the things he said. OSS is not a cancer that kills the software industry. It is a cancer more in terms of if you embrace it, you will never be cured for any walled garden :-)
          spicycheeks
          • different

            I know they're different; the point from an anti-trust point view is pricing and effect on competition and motivation. Free software and OSS software share those market features, so the question devolves down to motivation. Microsoft's motivation on browser and anti-virus is far more malicious (in my opinion) than IBM & Google's use of the *nix variant. Thus my question.

            I truly believe that Microsoft has the right to sell its browser and AV for $0, and I believe the people that write OSS have the right to release their product under the constraints of whatever license and price they see fit.

            Oracle, Microsoft, and whoever do not have greater right to the market than Bob Co., nor any great right to dictate price points for that market. If Bob Co. wants to create and sell an OS for $0 and include the source, and include right to redistribute, then that is Bob Co.s right.
            rwwff
          • lol me

            wrote "OSS Software" BAH!
            rwwff
      • P. Douglas

        You're delusional. You kind approaching this from the wrong end. And btw, you have forgotten that free software or/and open software constantly compete with each other.
        eulampius
      • Introduce fair competition is problemtic

        Hi :)
        Companies in IT markets seem to be used to only selling shoddy products and then supporting them badly. Market domination is encouraged so they are not familiar with having to deal with fair competition from other comparable products.

        Once a good product appears with a well priced support structure, such as with Redhat, then it makes sense that people move away from some of the outrageously priced tech support that we are familiar with (that is more interested in closing tickets fast rather than actually helping people solve problems).
        Regards from
        Tom :)
        Tom6
      • Ah, the broken window fallacy rears its ugly head

        Or maybe, given that this is about Linux, it's the broken Windows fallacy.

        FUD doesn't change basic economic principles. The IT industry as a whole, and especially the software part of it, have long worked to sustain artificially high prices. OSS simply corrects for that market condition. It doesn't take anyone's money out of the system.
        daboochmeister
      • P. Douglas: "OSS is the great cancer on the computer industry"

        Might want to ask Apple. It's done quite well dipping into open-source BSD for both OS X and iOS. Apple's steep market share drop for the iPhone and, to a lesser extent, the iPad is, IMO, a result of its refusal to fully embrace the mid-market (nobody ever expected Apple to participate in Android's current race to the bottom).

        Both Apple and Google have built open-source SQLite into iOS and Android, respectively, for use by app developers. This has enhanced both mobile platforms.

        Microsoft recently dumped its own internal development effort and jumped on the open-source Hadoop bandwagon. And as for its being free, Microsoft is making billions from its various patent agreements with Android OEMs. Microsoft, more so than any other entity, knows the actual cost of Android to consumers.

        At it's heart, open-source is merely a competing software (and, more recently, hardware) development model. One can choose to fully embrace it as Red Hat and SUSE have done. One can partially embrace open-source development as Apple has done with OS X/iOS, as Nginx has done with NGINX Plus and as Google has done with its stock Android available to OHA members and the Chrome web browser. Or one can choose the proprietary path as Microsoft has done with Windows, Microsoft Office, IIS and SQL Server, as Oracle has done with Solaris (remember, Oracle killed OpenSolaris shortly after the Sun acquisition) and as Google has done with its varied proprietary services and the recently-acquired QuickOffice which is now free proprietary software.

        Finally, one can use open-source development tools to create both open-source and proprietary software.
        Rabid Howler Monkey
      • I guess you also feel photcopiers should be illegal, too.

        Since photocopiers pretty much caused the carbon paper industry to disappear.
        Or monks being put out of work by the printing press, and so on.

        What you are describing is not anticompetitive, it is called market evolution.
        If the old timers like MS want to survive, they must adapt.
        anothercanuck
      • I blame MS for their own failures

        Big companies like MS make way too much money selling garbage. If it takes "cancer" to trim the fat from the software world, so be it. Maybe devs, etc. will actually get paid what they are worth.

        Not that the focus of OSS is to compete with MS, but if it takes giving away software in order to compete with them, I think it is fine.

        Yes, maybe there will be a time when the market becomes over-saturated with developers that can't find a job, but maybe at that point other industries can afford to hire people from other disciplines. I would prefer that companies hire people from my discipline, instead of spending money on software.
        jsch2012
    • Investing in anything non-MS is looking good!!

      Hi :)
      So while MS are having trouble living up to their expectations Redhat are surpassing their's. Is this a problem with the forecasters being overly optimistic or pessimistic or is it really unexpected growth?

      Non-MS seem to be doing really well. Both long-established companies such as Redhat as well the noobs such as Android.
      Regards from
      Tom :)
      Tom6
    • Sounds good to me

      Coming from outside the software/IT world, I would prefer the software industry have smaller profit margins. It puts the industry in plane with the rest of the world.
      jsch2012
  • No you dont' have rights to sell with 0$

    You don't have the right to sell your product with 0$ , it's called a below cost sale, while you make money from other service (which the competitor may not have), this is called noncompetitive behavior, and prevented in most countries by law.
    example, google makes money from ads and search, and spend money to develop android which is sold for 0$,
    this is harming Microsoft which have no ads and must sell their OS to make money.

    You can't sell cars for 0$ because you make enough money from selling trucks, because you will harm the other company that only make cars and not making trucks.

    I hope that the governments start to think about this problem, you are free to open source your code, but you are not free to harm the market and the competition.
    FadyNabilNashed
    • @FadyNabilNashed

      Open sourcing the code is not going to harm the competition. If you are going to spend something on a product, whose alternative is free/open sourced, you expect the product to be superior. Perfect example would be the comparison between MS office and Libre office. Even though Libre office is lot more decent for something free, MS office is lot more powerful.

      Your car analogy is actually wrong. Even if your main revenue is from some other source, still you will spend some 'X' dollars to make a car. If you wants to sell it for $0, it will hurt you more than it hurts your competition. Basically, many will buy it at first, later they might try to buy something different to stand different from the crowd and may buy the competitor's. However, if both the $0 car AND the competitor's car are of same league, it's a problem from the competitor. This is also not something similar to Android and Windows Phone.
      spicycheeks
      • @spicycheeks

        You suppose that open source free products have 0$ cost, which is not true,
        Linux is being developed mostly by paid developers, also Android is being developed by paid developers working at google,
        The difference is that google can make money from ads and search engine( which is not open source by the way), while Microsoft, palm, apple are not able to do the same simply because they don't have the same service.
        So google uses the money they earn from the ads (trucks!) and spend on developing Android (the cars), then they provide the android (cars) as free, to make the people see their ads and uses it's search engine and Youtube (trucks!).
        So yes, the trucks and cars applies here.
        The same you can apply to Red hat model, (Training and support service=Trucks), (Red hat linux = cars).
        FadyNabilNashed
    • Making antitrust cases against mega corporations over OSS

      Actually, based on what you said, a case can probably be made to the Europeans that Google violated antitrust law, when it used its search and ad business, to fund the release of Android OSS into the mobile market, to eliminate competition. Blackberry, Nokia, Palm and others were certainly harmed by Google's actions. It is simply not fair that a mega corporation that can make money from one particular business model on account of its massive scale, and be allowed to eliminate competitors who use another business model, who simply cannot adopt the aggressive corporation's business model or an alternate model on account of their relatively small size.

      I also think hardware companies colluding over the distribution of Linux and other OSS should be penalized and held in check, when together they support the release of OSS software into different market sectors, which eliminates competition. Why should companies like IBM be allowed to support Linux server software, Libre Office, etc. in market sectors in such a way, that small software companies find it impossible to compete? These hardware companies help to support the creation of these terrible "no man's lands" sectors in the software market. E.g. only mega corporations now can develop and sell server and client software. Small companies are simply not able to create Office type software and make appreciable money. I think regulators should take a look and halt the practice.
      P. Douglas