Red Hat: The first billion dollar Linux company has arrived

Red Hat didn't just break a billion dollars in annual earnings, it smashed its way pass a billion bucks with a fiscal year gross revenue of $1.13 billion, up 25% year-over-year.
Written by Steven Vaughan-Nichols, Senior Contributing Editor

Red Hat: The first billion dollar Linux company.

Red Hat: The first billion dollar Linux company.

Depending on how you look at these things, Red Hat has long been a billion dollar company. With a market cap of almost $10-billion dollars, Red Hat, the biggest of Linux companies, has long been open-source's shiniest success story. The gold standard of business success, though, is making a billion dollars in revenue in a single fiscal year and Red Hat has just pulled this feat off.

Red Hat didn't just creak the billion dollar mark though. It smashed its way through it. For the full fiscal year 2012, total revenue was $1.13 billion, an increase of 25% over the prior year. Subscription revenue from Red Hat Enterprise Linux (RHEL) was $965.6 million, up 25% year-over-year.

In the earnings call, Jim Whitehurst, Red Hat's President and CEO said. “Red Hat is the first pure-play, open source company, and one of only a select few software companies, to have achieved the billion dollar revenue milestone. The open-source technologies which we provide are being selected by more customers every day as they re-architect the infrastructure of their data centers for greater efficiency, agility and cloud enablement.”

Red Hat reported fourth quarter earnings of $36 million, or 18 cents a share, on revenue of $297 million, up 21 percent from a year ago. Non-GAAP earnings for Red Hat’s fourth quarter earnings were 29 cents a share. That handily beat Wall Street's estimates of fourth quarter earnings of 27 cents a share on revenue of $291.2 million. For fiscal 2012, Red Hat reported earnings of $146.6 million, or 75 cents a share, on revenue of $1.13 billion, up 25 percent from a year ago.

Looking ahead, Whitehurst sees companies and governments looking for more efficient, cost-effective technologies. They, in turn, are moving to Linux and open-source solutions because they can deliver programs and operating systems that meet these demands. Their existing customers are also happy with Red Hat. Whitehurst said 99 out of Red Hat's top 100 customers whose support contracts were due renewed their contracts.

No matter what aspect of Red Hat's business you looked at, Red Hat made money, “We experienced impressive breadth and depth of demand for our technologies this quarter whether by geography or by industry vertical. This resulted in record financial metrics for both the fourth quarter and the full fiscal year 2012,” said Charlie Peters, Red Hat's Executive Vice President and CFO during the earnings call. “Our strategy for growth, coupled with relentless day-to-day execution of the business, has been successful. We experienced a significant increase in large deals, both in Q4 and for the full year which contributed to annual organic growth of 25% in revenue, 33% in non-GAAP operating income and 35% growth in operating cash flow.”

Remember when people used to talk about how you couldn't make money from Linux and open-source software? About how you couldn't make money by “giving” things away? Recall, Bill Gates in 1999 saying "We think of Linux as a competitor in the student and hobbyist market but I really don't think in the commercial market we'll see it in any significant way." Funny, you don't hear much of that nonsense anymore.

Things should only continue to get better for Red Hat. According to IDC's latest server numbers, Linux is continuing to grow, while Windows and Unix decline. Peters expects Red Hat's revenue to grow 20% in the next fiscal year.

To quote Jim Zemlin, executive director of The Linux Foundation, “Since Linux has grown, so have the benefits Red Hat receives (and gives to others). When Facebook contributes code to make their data centers more efficient, Red Hat benefits; when Red Hat contributes code to improve file systems, mobile device makers benefit; when mobile device makers contribute code to improve power consumption, super computer cooling costs go down; when super computer users contribute code to make Linux faster, Wall St. benefits with faster trading systems -- and so on and so forth. So you can see that the positive feedback loop that is represented in the billions of figures above shows no signs of slowing down. Congratulations to Red Hat but also to all Linux users and ecosystem members who participate in this virtuous circle.”

Related Stories:

Red Hat's Q4 shines, top expectations Linux servers keep growing, Windows & Unix keep shrinking

Big Business, Big Linux

Red Hat Enterprise Linux 5.8 boosts KVM, Xen virtualization

Red Hat scoffs at VMware's open cloud claims

Editorial standards