Steps to Take Before Choosing a Business Continuity Partner

Linux operating system and middleware software distributor Red Hat continues to power through its fiscal quarters, even while the European economy is choppy and several key industries – government and financial services being two important ones – are under pressure.

In its third quarter of fiscal 2012, which ended in November, Red Hat's revenues rose by 23.1 per cent to just a hair over $290m, with support subscription revenues for its various open source products accounting for $246.5m (up 29.2 per cent) and training and professional services revenues hitting $43.5m (up only 18.4 per cent).

For the nine months ended in November, Red Hat had $836.1m in sales (up 25.8 per cent) and brought $110.7m to the bottom line (up 50.1 per cent).

Red Hat ended the quarter with $808.3m in cash and equivalents, down thanks to the $136m acquisition of open source cluster file system maker Gluster. Red Hat has no debts, and $819.6m in short-term and long-term deferred revenues, most being short-term.

Obviously, Red Hat is still the poster child – more of a pin-up teenager with 1970s hair these days – for how to commercialize open source software. No other company has come even close to the sales and profit levels that Red Hat has generated from open source software, and some might argue that no one else ever will, either.

It's also clear from the numbers that Red Hat's growth for sales and profits is slowing a tiny bit as fiscal 2012 progresses; some of that is tough compares, some of it is the dicey economy. But the fact of the matter is that Red Hat has pretty much been unaffected by the Great Recession – or better still, it's well-positioned for it.

"When the economy is weak, we do well, and when the economy is slowing, we also tend to do well," explained Charlie Peters, Red Hat's CFO, during a conference call with Wall Street analysts after the market closed. That's because open source software is an alternative to proprietary and Unix systems as well as an alternative to Microsoft's Windows.

Red Hat will clearly break through the $1bn annual revenue mark in its fourth fiscal quarter, with sales expected to be in the range of $289m to $292m. But even at that level, Jim Whitehurst, Red Hat's president and CEO, said that the company had barely dented its addressable markets.

Whitehurst pegged the worldwide server operating system market at about $20bn a year in revenues, with middleware at about $10bn, server virtualization at about $5bn, and unstructured data storage at $4bn and "exploding." That gives Red Hat about 3 per cent of its total addressable market. (Of course, open source software has a habit of shrinking TAMs because the code is there for someone else to sell support around, and there is no perpetual license to have to upgrade.)

In the third quarter, all of Red Hat's top 25 deals renewed, and did so at 130 per cent of the value of their original deals. That's lower than the 150 per cent renewal rate for the top 25 deals in Red Hat's fiscal Q2, but Peters said that Q2 was an outlier and that 130 per cent was more typical.

Of the top 30 deals that Red Hat did in the quarter, 27 of them were for more than $1m – a new record for the company – and five were worth over $5m. In aggregate, the revenue from the top 30 deals in Q3 fiscal 2012 was up 69 per cent compared to the year-ago quarter.

Some very big financial services and technology companies, as well as some big governments, bought lots of Red Hat support in the quarter, Peters said. A dozen of the top 30 deals in the quarter had a JBoss middleware component, and four of the deals were only for middleware.

Peters said that Red Hat's sales were balanced across its geographies, with 60 per cent of sales coming from the Americas, 24 per cent coming from EMEA, and 16 per cent from Asia/Pacific. All are growing in the double digits.

About 64 per cent of the company's revenues in Q3 came from channel partners – who closed some of those big million-dollar deals, by the way – and the remaining 36 per cent were done by Red Hat's own sales force and online store. ®

Requirements Checklist for Choosing a Cloud Backup and Recovery Service Provider