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When Will Red Hat Make Money from OpenStack Clouds?

Linux vendor Red Hat announced its first quarter fiscal 2014 earning results late Wednesday, showing continued growth across multiple fronts, including the cloud. While Red Hat is now all in on OpenStack as a cloud platform, CEO Jim Whitehurst cautioned financial analysts that it is still early days. For the quarter, Red Hat reported revenue […]

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Sean Michael Kerner

Jun 20, 2013

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Linux vendor Red Hat announced its first quarter fiscal 2014 earning results late Wednesday, showing continued growth across multiple fronts, including the cloud. While Red Hat is now all in on OpenStack as a cloud platform, CEO Jim Whitehurst cautioned financial analysts that it is still early days.

For the quarter, Red Hat reported revenue of $363 million, which is a 15 percent year over year gain. Net Income was reported at $40 million or $0.21 per share which is a marginal increase over the $37 million reported a year ago. Moving forward, Red Hat provided second quarter fiscal 2014 guidance for revenue in the range of $370 million to $373 million.

During Red Hat’s earnings call, CFO Charlie Peters revealed details of where the company is making its money. One of the key metrics is its top 30 deals roster, which grew in the first quarter to a record of 28 deals of $1 million or greater. Two of the top 30 deals were in excess of $5 million. Peters said that within the top 30 roster the hosting/cloud provider vertical was strongly represented.

“We’ve got a good business with the public cloud providers,” Peters said. “We provide infrastructure to many of the public cloud providers, and we also sell instances of Red Hat in the public cloud that are consumed by their customers.”

OpenStack

While Red Hat is seeing growth and opportunity in the cloud, that doesn’t mean the company is making any money from OpenStack, yet. Red Hat is currently the leading code contributor to the open source OpenStack cloud platform and is gearing up to launch its Red Hat Enterprise Linux OpenStack product next month.

Red Hat CEO Jim Whitehurst said during the earnings call that his company is seeing a lot of interest and excitement around OpenStack, but he cautioned that he also wants to temper financial expectations.

“My guess is we will do a lot of POCs (Proof of Concepts) in the next year on OpenStack, but people won’t start writing 6-figure checks for software,” Whitehurst said. “They may for some services, but for software, until they get a little closer to production, that’s probably still a year or 18 months away.”

As such, Whitehurst does not expect that OpenStack will have a direct material impact to the top line of his company’s business this year. That said he added that, indirectly, the OpenStack bits make Red Hat more strategic with customers.

From a competitive perspective, as Red Hat ramps up its cloud efforts, Whitehurst expects a similar environment as to what he has seen on the core Linux side over the years.

“Obviously, the initial use cases of cloud is in kind of dev test, developers playing around, doing things,” Whitehurst said. “You’ll see Ubuntu or CentOS or Fedora or others in there. But typically when those things go to production, they move to RHEL. “

Sean Michael Kerner is a senior editor at Datamation and InternetNews.com. Follow him on Twitter @TechJournalist.