Red Hat Grows Business to $1.3 Billion as OpenStack Cloud Opportunity Looms Large

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Enterprise Linux vendor Red Hat reported its full year fiscal 2013 earnings late Wednesday, showing continued growth and future opportunities. To date, Red Hat has made the bulk of its fortunes from Linux, though with an enterprise OpenStack cloud offering on the horizon, that could change.

For the full year, Red Hat reported revenue of $1.33 billion, which is a 17 percent year-over-year gain. The full year revenue was fueled by a strong fourth quarter in which Red Hat pulled in $348 million in revenue, also a 17 percent year-over-year gain. Net Income for the full year was reported at $150 million or $0.77 per share, which is a marginal gain over the $147 million reported for fiscal 2012.

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Moving forward, Red Hat provided guidance for its fiscal 2014 for total revenue in the range of $1.51 billion to $1.54 billion for fiscal 2014, which would be a 16 percent annual growth rate.

Land and Expand

During Red Hat’s earnings call, Red Hat CEO Jim Whitehurst explained that a key to his company’s growth is its, ‘land and expand’ strategy. In that strategy, Red Hat gains a beachhead at a client company with one product and then expands its footprint over time.

Whitehurst noted that during the fourth quarter, Red Hat renewed 25 out of 25 of its largest deals over 120 percent of their previous value.

“Even with some of our largest and oldest accounts, we continue to expand our relationship with newer offerings,” Whitehurst said. “One of the deals in Q4 was with an early adopter of Red Hat technologies, which doubled their purchases with a $10 million-plus deal.”

OpenStack

One of the ways that Red Hat is looking to land and expand in the coming years is by way of the open source OpenStack cloud platform.

“We continue to aggressively invest in OpenStack and are now the second largest contributor to the project,” Whitehurst said. “As with Linux, we believe there is a role for Red Hat to provide an enterprise-class distribution, we have both the expertise and the credibility to do so.”

Red Hat came a little late to the OpenStack party and currently does not have a full production offering in the market. Red Hat first publicly announced its intent to support OpenStack in April of 2012. The company currently has a preview release of its OpenStack Enterprise solution in the market.

“We’re working with a lot of early adopter customers on OpenStack, and there’s a lot of interest in it,” Whitehurst said. “But until those things go into production, there just won’t be big dollars.”

Whitehurst is optimistic, however, that there are in fact big dollars on the table in the OpenStack market, eventually.

“So I think if you look out, if you put a horizon 4 or 5 years, it could be much, much larger than the Linux market for sure,” Whitehurst said. “But if you ask me over the next 12 months, I can’t imagine there’ll be material revenue, not just for us but for anyone.”

Sean Michael Kerner is a senior editor at InternetNews.com, the news service of the IT Business Edge Network, the network for technology professionals Follow him on Twitter @TechJournalist.