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Rackspace sales and profits pop in Q3

'We are the birth mother of OpenStack'

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The cloud computing wave and the goodwill and technical expertise that Rackspace Hosting has attained through its founding of the OpenStack cloud control freak, more than two years ago, are helping to puff up the company's finances.

Both revenues were up 27 percent and net income was up 36 per cent in the third quarter, to $336m and $27.2m, respectively.

If there is a jittery economy, Rackspace is benefitting from it. And perhaps, now that it has shifted its compute cloud to OpenStack and is now operating the largest public cloud based on that control freak in the world as well as helping to code it, it is also benefitting from some migrations off Amazon Web Services, which has had a number of challenges with outages this summer and fall.

In the quarter ended in September, dedicated cloud revenues, which includes traditional hosting as well as managed infrastructure in private clouds operated by Rackspace on behalf of customers in their own sites or in co-location facilities, drove $256.6m in sales, up 19.9 per cent compared to the year-ago period. Public cloud revenues shot up 56.7 per cent to $79.4m. And that was with only two months of OpenStack-driven clouds available.

In a conference call with Wall Street to chat about the numbers after the market closed, CEO Lanham Napier said that the company was "the birth mother of OpenStack" and that it was firing up marketing campaigns to make sure that people understood that Rackspace had "just open sourced the cloud."

He said that one of the reasons why Rackspace teamed up with NASA to start the OpenStack project was because its internally developed cloud control freak had some scalability barriers that did not allow the company to chase the bigger jobs customers want to park in the cloud.

Even a year ago, for some of these jobs, Napier said he could not "look these customers in the eye" and promise what they needed, but now that it has helped create and then adopted OpenStack, it was ready to take on Amazon Web Services.

"We now have a seat at the table, with thought leadership, where we didn't have it before." Napier explained. "For the first time, customers have an alternative to Amazon."

The portions of the Rackspace Cloud that are running on OpenStack rather than the prior controller have over 1 million virtual machine instances running on them and the OpenStack control freak has processed over 120 million API calls since it went into alpha testing.

OpenStack is making Rackspace more efficient, too, according to Napier, as are larger and more complex workloads, which require bigger virtual machines. The average monthly revenue per server stood at $1,287 per machine as the September quarter came to an end, up from $1,155 a year ago and up $17 from the June quarter.

Rackspace had 89,051 servers across its various data centers in Q3, more than 10,000 machines more than a year ago, but more importantly for Rackspace shareholders, that is up 13 per cent from a year ago and half the rate of the revenue jump. The Rackspace customer count stood at 197,635 as September came to a close, up 22 per cent, so the average customer is spending more money, and the number of employees was up 21 per cent, also slower than revenue growth.

Rackspace spent $85m on capital expenses in Q3, which included $51m on gear of various kinds, $6m on data centers, $3m on headquarters office expansion, and $25m on capitalized software development costs. The company has 58 megawatts of data center capacity under contract, with 33.7 megawatts available and 23.5 megawatts actually used. The company is driving $58,179 in revenue per megawatt per year, compared to $53,994 a year ago. ®

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