Red Hat: We're Not Just About Linux Anymore

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Red Hat reported second quarter fiscal 2013 results late Monday that continues to show revenue growth.

Growth isn’t just coming from Red Hat’s core Linux business, it’s also being fueled by the company’s expanding portfolio, which includes middleware, cloud and storage technologies.

For the quarter, Red Hat reported revenue of $323 million — up by 15 percent year-over-year. Net Income came in at $35 million or $0.18 per share, which is a decline from the $40 million reported for the second quarter of 2012. Moving forward, Red Hat provided third quarter guidance for revenue in the range of $336 million to $339 million.

“I think what we’re seeing, which is really, really nice, is that our large RHEL (Red Hat Enterprise Linux) customers are starting to significantly use JBoss,” Red Hat CEO, Jim Whitehurst said during the company’s earnings call.

Whitehurst added that JBoss sales tend to have longer sales cycles, but when the deals do come in they are typically larger dollar opportunities. So while there is still growth in RHEL, as UNIX to Linux migrations continue, Whitehurst noted that middleware opportunities as part of the big deals are really key.

Storage

While Red Hat has been in the middleware business with JBoss for some time, it is still a new player in the storage market. Red Hat acquired Gluster in October of 2011 for $136 million and launched the latest commercial Red Hat version in June.

Whitehurst commented that the storage market looks a lot like Linux did a decade ago, with relatively expensive solutions that have really, first-class capabilities.

“But not all your data and including most of your unstructured data, really doesn’t need to fly first class,” Whitehurst said.

As unstructured data grows, there has been an exponential growth in storage requirements that is fueling interest in Red Hat’s storage offering. Whitehurst said that Red Hat has already had its first first six-figure storage deal, and there are a lot of Proof-of-Concept evaluations in progress.

Storage vs. Virtualization

During the earnings call, Whitehurst was asked whether the opportunity for Red Hat in storage is bigger than it is in virtualization.

“Well in terms of absolute dollars as a separate product line, no question in my mind that storage is a significantly bigger opportunity in the sense that, storage is growing rapidly and the cost of those solutions are quite high,” Whitehurst said.

Whitehurst added that Red Hat has a significant cost advantage by being a flexible software-based solution.

While Whitehurst is bullish on storage, he’s also optimistic on virtualization. The difference is that virtualization for Red Hat is built into the core operating system itself.

“So much of the growth that you see associated with the strategic use among our customers for RHEV (Red Hat Enterprise Virtualization) is built into the operating system,” Whitehurst said. “So basically, we’re monetizing a management platform.”

While Linux is the core of Red Hat’s business, Whitehurst is now trying to position the company more as a strategic solutions provider to customers.

“Frankly, to be blunt, no CIO I know of cares about Linux, right? It’s so far down in the stack,” Whitehurst said. “Yes, they know they use it, and they know it helps them save money, but that’s not what makes it strategic.”

Whitehurst added that for Red Hat customers it’s the middleware stack and now storage and cloud that CIOs are actually interested in.

“So I can just see in my own conversations out in the marketplace, we’re much more strategic,” Whitehurst said.

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.