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Red Hat Sees Real Money in Virtualization and Cloud

For Linux vendor Red Hat, the road ahead is about looking up to the cloud as it ramps up business efforts to profit from new virtualization and service-oriented initiatives. Red Hat (NYSE: RHT) reported its second quarter fiscal 2011 financial results this week, posting solid revenue growth across its operating-system and middleware business units. For […]

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Sean Michael Kerner

Sep 23, 2010

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For Linux vendor Red Hat, the road ahead is about looking up to the cloud as it ramps up business efforts to profit from new virtualization and service-oriented initiatives.

Red Hat (NYSE: RHT) reported its second quarter fiscal 2011 financial results this week, posting solid revenue growth across its operating-system and middleware business units.

For the quarter ending Aug. 31, Red Hat reported revenue of $220 million, a 20 percent increase over the same period last year. The firm reported net income of $23.7 million, or $0.12 per share, which is a decline from the $28.9 million that Red Hat reported in the year-earlier period. But in that quarter Red Hat included a one-time tax benefit of $7.3 million.

Red Hat revenues beat the estimates of Wall Street analysts, according to analysts polled by Thomson Reuters, who forecast revenues of $211.5 million. Red Hat itself had provided guidance projecting revenuein the range of $210 million to $212 million.

Looking forward to the third quarter of fiscal 2011, Red Hat provided guidance of revenues between $226 million to $228 million.

Red Hat CEO Jim Whitehurst noted during the company’s earnings call that the company’s cloud and virtualization efforts are only beginning to bear fruit. During the quarter, Red Hat announced an enhanced Cloud Foundation effortfor building cloud infrastructure.

“We’re making solid progress on our cloud initiatives starting with Red Hat Cloud Foundations,” Whitehurst said. “In fact, this quarter we closed a $1 million-plus deal for private cloud management with a customer that is driving the cutting-edge of cloud technology.”

The virtualization technologies under the Red Hat Enterprise Virtualization (RHEV) banner are a core component of the company’s cloud efforts. RHEV uses the open source KVM virtualization technology as its base, and was last updated in March to version 2.2. Red Hat has already signed up some big names as RHEV customers, including IBM (NYSE: IBM) and Qualcomm (NASDAQ: QCOM).

“In less than a year from launch of our RHEV product portfolio, we have announced over 300 customers working with RHEV in both development and production,” Whitehurst said.

Looking forward, Whitehurst noted that Red Hat’s cloud and virtualization technologies have only been in the market for less than a year. He added that Red Hat is still building that business up with proof-of-concepts and customer trials.

“So I’d say as we get to next year you’ll see that turn into real revenues to move the needle,” Whitehurst said. “We have RHEL 6 coming out later this year and if you look at the performance there in terms of the feeds and speeds and the feature set, I feel very, very good about that.”

Red Hat Enterprise Linux (RHEL) 6 is the next major release of the company’s flagship operating system. Currently in beta, RHEL 6 will include new performance and virtualization capabilities.

The road ahead may well also see new competitive pressures facing Red Hat. Rival Oracle this week launched its new unbreakable Linux kernel, for instance.

Oracle has been providing a clone of RHEL since 2006 using a Red Hat kernel. The new effort will see Oracle’s Enterprise Linux using its own kernel in an effort to provide better performance for the company’s applications. When Oracle first launched its Linux distribution, there were some competitive concerns about how it might affect Red Hat, though to date Red Hat hasn’t taken a big hit, according to Whitehurst.

“Let me start off on Oracle. I thought it sounded like a repeat of what we heard four years ago. I think we feel very, very good that we know how to compete in this market,” he said. “[We] recognize the key component of our value proposition is bringing a broad certified ecosystem. Bringing the new kernel out doesn’t bring that same set of value, so we feel very good about how we’ve competed in the past and how we will going forward.”

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