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Cloud dollars fluff Rackspace's quarter

Customer milestone for open-cloud champion

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Cloudy infrastructure demand at Rackspace has helped fluff the hosting provider's second-quarter, with overall sales up 23.2 per cent to $187.3m and net income jumping 60.2 per cent to $11.2m.

Traditional managed hosting drove $164.1m in sales, up 18.1 per cent and boosted substantially by the enterprise sales team created in April 2009 to chase large companies and do big deals. Cloud revenues, which includes Cloud Servers virtual machine slices and Cloud Files virtual storage, accounted for $23.2m, up 77.8 per cent compared to the year-ago.

Lanham Napier, president and chief executive officer, said the company added more than 8,500 new customers during the quarter, breaking through the 100,000-customer milestone. As June came to a close, Rackspace had 19,533 customers using its managed hosting and 88,950 customers using its cloud services.

The vast majority of its cloudy customers use the Cloud Files service, and Rackspace doesn't include the Jungle Disk customers it acquired in October 2008 who are still using Amazon's S3 service as the backend for the cloud storage.

Interestingly, the Cloud Servers for Windows service that just launched had over 2,200 people testing it. Napier said that if you look at the customers who are ready to roll Windows cloud slices into production, then Windows has nearly the same installed base as the Linux slices that Rackspace has been selling for nearly two years.

As the quarter came to a close, Rackspace had 61,874 servers installed to support its managed hosting and cloud services, up 18.4 per cent. Bruce Knooihuizen, chief financial officer, said in a conference call the company shelled out $45m to cover capital expenses in Q2, including $30m to buy customer gear, $6m for data center build outs, $1m for office space, and $8m for capitalized software and related projects.

For the first half of the year, Rackspace spent $100m on capital expenses against $366.1m in revenues. Knooihuizen said the company was doing a better job stretching its capital budget and would now hit around the midpoint of its expected $185m to $230m range in capital expenses for all of 2010.

<pThe installed Rackspace customer base grew by five-tenths of a per cent in second quarter, which was better than the two-tenths of a per cent in the first quarter. This growth is the highest Rackspace has seen since the economic meltdown got rolling in earnest in 2008. Customer churn is also down to pre-meltdown levels, at nine-tenths of a per cent in both Q1 and Q2, compared to a peak of 1.2 per cent in 2008 and one per cent in 2009. The churn rate during the expanding economy during both 2006 and 2007 was nine-tenths of a per cent, so this is a return to normalcy of a sort.

Napier did not give specific growth targets for 2010, but reiterated Rackspace expected sales to grow this year and was not satisfied with its growth thus far. Napier said Rackspace could potentially have millions of customers globally spread over its managed hosting and cloud services, and added that in the long term that a 15 per cent annual revenue growth rate "is absolutely reasonable to achieve" provided the economy is not weak.

He said Rackspace is betting heavily that the OpenStack collaboration with NASA, which is creating open-source code to manage compute and storage clouds that can scale to one million machines and 60 million virtual machines, would help foster the deployment of cloudy infrastructure in the long run.

Rackspace is expecting to roll out its public cloud offering in the UK before the end of the year, which will pump up sales in the near term. The also company is putting together a managed hosting service with a higher service level (and presumably carrying a premium) on its public cloud, and is cooking up its next generation public cloud - both will launch before year's end.

Hybrid hosting, which provides customers with a mix of cloudy and managed hosting capacity, is also coming in 2010. All of these new services will help push sales in 2011. ®

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