Red Hat: Customers less scared now

Red Hat chief Jim Whitehurst says companies don’t see a depression on the horizon. However, Red Hat does have to spend more on sales and marketing to get more customers.
Written by Larry Dignan, Contributor

Red Hat chief Jim Whitehurst said that customers aren’t as shell-shocked as they were three months ago. The good news: Enterprise buyers don’t see a depression on the horizon. The bad news: It remains to be seen whether enterprises will be in the buying mood and Red Hat has to work harder to gain sales.

In an interview with Reuters, Whitehurst said:

“I don’t think people are quite as scared as they were a couple months ago. A couple months ago people were really worried we were falling off a cliff. It has stabilized since then.”

Whitehurst’s comments came after Red Hat delivered solid fourth quarter results that were two cents better than estimates. And Red Hat’s outlook for the first quarter and fiscal 2010 were in line with expectations.

On a conference call with analysts Whitehurst indicated that Red Hat was garniering interest because it could cut IT costs:

While our existing key customers continue to renew and increase the scope with their commitments to Red Hat, we are also seeing increased interest in buying from approximately 40,000 new customers drawn to our high value low cost product this year alone.

However, Red Hat does have to spend more on sales and marketing to get more customers. Whitehurst added:

Now looking at fiscal 2010, our key strategic initiatives are designed to strengthen our long-term growth profile and gain market share in the face of a turbulent macro economic environment. First, we will drive for broader mainstream adoption like expanding our marketing and commercial capabilities around our award winning solutions.

The company reported net income of US$16 million, or US$0.08 a share, on revenue of US$166.2 million, up 18 percent from a year ago, but only 1 percent from the third quarter. Adjusted earnings were US$0.22 a share, US$0.02 better than estimates.

For fiscal 2009, Red Hat reported net income of US$78.7 million, or US$0.39 a share, on revenue of US$652.6 million, up 25 percent from a year ago.

The mileposts for the quarter were strong:

  • Red Hat had billings of more than US$200 million;
  • The company had more than 100 deals topping US$250,000;
  • 30 percent of Red Hat’s largest deals included middleware (JBoss);
  • 100 percent of its top 25 customers renewed;
  • Sales and marketing expenses for the fourth quarter were US$4.24 million, up from US$2.6 million a year ago;
  • Research and development fourth quarter spending was US$4.25 million, up from US$2.26 million a year ago.

As for the outlook, Red Hat said that its first quarter earnings excluding items will be US$0.13 a share to US$0.14 a share on revenue of US$171 million to US$173 million. That tally was in line with estimates. Red Hat projected fiscal 2010 revenue of US$720 million to US$735 million. Wall Street was expecting revenue of US$735 million.

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