Red Hat Grows on Windows to Linux Migration

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Red Hat is following up its first billion dollar year with a strong first quarter of growth.

For Red Hat’s first quarter fiscal 2013, revenue was $314.7 million, a 19 percent year-over-year gain. The bulk of that revenue came from Red Hat’s software subscriptions, which came in at $272.6 million, a 21 percent gain. Net Income was $35.7 million, or $0.19 per share, which is a gain over the $32.5 million reported a year ago.

Red Hat CFO Charlie Peters explained during the company’s earning call that earnings for the first quarter were negatively impacted by a $3.1 million charge related to Red Hat moving out of one of its existing buildings in Raleigh, North Carolina.

“You’ll recall that we announced late last year that we will be moving to a larger building in downtown Raleigh to accommodate our growth,” Peters said. “We have negotiated very favorable lease terms on the new facility and received significant incentives from the state, the county and the city in conjunction with this move.”

Looking forward, Peters provided second quarter revenue guidance to be approximately $320 million to $322 million.

A key driver of Red Hat’s growth during the quarter was big deals, valued at over $1 million each. Peters noted the top 30 deals set a Q1 record for deals over $1 million.

“In the quarter, we had 25 deals of $1 million or greater, nearly double from the prior year first quarter,” Peters said. “Two deals were in excess of $5 million. And cross-selling was strong, with more than 40 percent of the deals including a middleware component and 3 being stand-alone middleware deals.”

Peters explained that tech and media and financial services were Red Hat’s top quarter verticals. He also noted that competitive migrations were also factor.

“One of the larger deals this quarter was a significant Windows-to-RHEL migration with a European financial services customer with global operations,” Peters said. “This customer is looking to achieve greater security, reliability, scalability and cost savings by standardizing on RHEL in their offices in over 20 countries and across multiple workflows.”

While Red Hat has enjoyed good success with financial services companies over the years, the company still has room to grow in that vertical. Red Hat CEO, Jim Whitehurst commented that financial services, telco and government customers are typically early adopters of technology.

“So years ago, they adopted Linux in their data centers, and those have continued to grow and grow and grow, because we generally land and expand,” Whitehurst said. “And the mainstream vertical started later. So just 4 years ago, a lot of the major companies started experimenting. And so we’re there and we’re expanding now.”

In data center and enterprise computing, Linux has long been viewed as a migration target for companies to move from Windows or Unix. With the rise of the cloud, that situation is now somewhat different.

“We are truly in a paradigm shift around computing from client server to cloud and open source components are the default choice, right?” Whitehurst said. “So it’s not that we are an alternative in the way we were in the client server world. It’s the default choice and so there’s large share gain associated with that when Linux and JBoss are the default choices in that next generation of computing.”

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.