Bottom line: Red Hat is also doing very well, indeed, like ‘Orrible, much better than might have been expected. For its third quarter, also ending close of November, the firm showed sales up an extremely healthy 21% year on year (to $236m).
Digging into that, we see some very nice aspects in here, such as it being able to record $199m in subscription support revenues, up 21%, while training and other services revenues rose to $37m, a 23% increase over the same three months in 2009. It also seems to be confirming bigger contracts, and more often: the firm’s CFO was able to say, for instance, in the results concall that of the top 30 deals closed in the quarter (including new customers as well as renewals) by the Red Hat sales team, one was worth over $5m and another 15 were all over the $1m mark. Finally, it seems to have got a convincing go-to-market pipeline, as it can offer both an enterprise (direct sale) and mid-range (channel) option (a 40-60 split in terms of how it sells its wares now, apparently).
We’ll get to profitability in a minute, and it’s a lot less straightforward than Ezza’s mob’s, to be sure – but still going the right way no matter how you cut it. But this all suggests that Red Hat – especially now that it’s seen off the putative competition, that of SUSE, as less than successfully brought to market by the former Novell – is abso-tootle the only Linux game in town. (Though – stay your hands, Red Hat publicists! – we will immediately also be happy to acknowledge it’s also a contender/moving into the middleware and virtualisation markets, too.)
Therefore – a bit, again, like Oracle – Red Hat is now a serious alternative for (as appropriate) Microsoft, IBM (WebSphere) and former Sun solutions in the OS and middleware arenas. So, all good so far.
Now for the niggles. We said we’d review the profit aspect. The issue is a bit complicated down to some legal hassles the firm’s been experiencing due to an investor lawsuit for disappointing 2002, 2003 and indeed Q1 2004 results.
So this time in 2009 it paid off the last of the costs arising from that, which means that on paper its net shot up 59%, but factor that out (as we should) its profits only actually went up 5%. So, question: when will investors get solid and sustained benefits from that? (This is what makes a blue-chip stock worth the name; it offers more stakeholder ROI, remember.)
A big aspect here is product transition, which as you become a bigger and bigger company becomes more and more of an annual or bi-annual hassle (ask MSFT). Red Hat has only just (November) launched the latest (6) version of its core Enterprise Linux offering, and it will take a while for customers to move on to it, assuming they see enough of a motivation to do so anyway (er, sorry, can’t resist saying ‘Ask MSFT’ again on this one, thinking Vista vs XP and all that). So question two: can it get that ramp moving quickly enough? Yes, the firm says it’s seen $10m in version 6 sales already, but there will by the nature of how software works be a lag here.
The company will, of course, soon be telling us, when it releases and discusses its full end of its 2010-11 fiscal year, which ends in February. So far, it says we can expect it to be getting that much nearer to the billion-dollar mark for the full year ($900m, to be precise), and it says it will be profitable on that run-rate.
A Linux firm making a billion dollars a year? They’d have clapped you in irons and/or put you in the rubber room for saying we’d see that 10 years back. Linux has indeed come of age; though one can carp it’s proven a one-horse pony, not a general industry-remaker.
So, yes. Red Hat ‘won’. Its next challenge is to convince us that Linux shouldn’t be a what-if? data centre choice, but a why-not? – which will take another good few years of solid delivery, way beyond 2011.
But the opportunity is there, and we tip our caps to the Red One for so doing.