Red Hat Closes in on $1 Billion in Revenue

Three years ago, Red Hat (NYSE:RHT) CEO Jim Whitehurst predicted that his company would be the first pure-play open source vendor to hit $1 billion in revenues. Red Hat is now nearly there.

The fourth quarter of 2011 was a big one for Red Hat with the debut of its flagship Red Hat Enterprise Linux 6 (RHEL) operating system as well as continued innovation in its JBoss middleware and Red Hat virtualization platforms. The earnings growth comes as Red Hat locks down its Enterprise Linux kernel in an effort to impede competitive efforts.

“With record bookings and billings in the fourth quarter, we are on a clear path to becoming the first pure play open source company to achieve $1 billion in revenue during our next fiscal year, a milestone achievement for Red Hat and the open source community,” Red Hat CEO Jim Whitehurst said during the company’s earnings call.

Red Hat reported its fiscal year 2011 results this week, with revenues for the year hitting $909.3 million, which is a 22 percent year-over-year increase. Net Income for the year was reported at $107.3 million or $0.55 per share, an increase over the $87.3 million or $0.45 per share reported for 2010. Red Hat ended the year with strong fourth quarter revenues of $245 million, for a 25 percent year-over-year increase. Net Income for the fourth quarter was reported at $33.5 million or $0.17 per share. Red Hat beat it own revenue guidance for the quarter which had been pegged at revenues in the range of $234 to 236 million.

Looking forward, Red Hat CFO Charlie Peters provided full year revenue guidance for Red Hat’s fiscal 2012 to be in the range of $1.05 billion to $1.07 billion. For the first quarter of fiscal 2012, Red Hat is providing revenue guidance in the range of $252 million and $255 million.

One of the key areas that Red Hat is aiming to grow is its virtualization and cloud business. Whitehurst noted that Red Hat currently has over 500 customers using its Red Hat Enterprise Virtualization (RHEV) product. RHEV is a competitive alternative to virtualization offerings from VMware and leverages an open source KVM hypervisor. RHEV is also tied to RHEL which is where Whitehurst sees growth opportunities.

“Well as you can imagine, users of RHEL are very confident in and capable with a KVM or Linux-based hypervisor,” Whitehurst said. “So we see a lot of interest and a lot of proof of concepts within our existing install base.”

Whitehurst noted that Red Hat is not trying to go after VMware’s installed base. He added that Red Hat is being pulled into greenfield opportunities for virtualization deployments, which has been a key focus for the company.

“Overall, our business is about taking share in the data center,” Whitehurst said. “The higher value that Red Hat infrastructure can be, the more value we add and the more our overall infrastructure grows.”

One area where Red Hat has been facing competition is from clones of its own RHEL operating system. Oracle Enterprise Linux as well as the community CentOS both use RHEL as the base. Starting with RHEL 6, Red Hat has moved to make it more difficult for the clones in the way it packages the RHEL Linux kernel.

“We are the top commercial contributor to most of the components of the Linux kernel and we think we have a lot of value and we want to make sure that, that value is recognized,” Whitehurst said. “In terms of competition, I don’t think we necessarily saw anything different from before but I’d say better to close the barn door before the horses leave than afterwards.”

Sean Michael Kerner is a senior editor at, the news service of, the network for technology professionals.

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