Red Hat (NYSE:RHT) reported its third quarter fiscal 2011 financial results this week, coming in at the top end of its own expectations. Growth at Red Hat came by way of new product introductions including Red Hat Enterprise Linux 6 (RHEL 6) and the continuing integration of JBoss middleware into the sales cycle.
Revenues for Red Hat’s third quarter of 2011 hit $235.6 million — a 21 percent increase over the third quarter of fiscal 2010. Red Hat had provided financial guidance during its second quarter fiscal 2011 for third quarter revenues between $226 million to $228 million. Net income was also on the rise at Red Hat and came in at 26.0 million or $0.13 per share and increase from the $16.4 million reported in the third quarter of fiscal 2010. Moving forward, Red Hat provided fourth quarter fiscal 2011 guidance for revenues in the range of $234 to $236 million.
Customer loyalty is a key metric for Red Hat, and it’s one that showed a positive trend during the quarter.[login]
“A proof point of this high level of customer loyalty and trust is in the continued strong renewals of our largest deals,” Red Hat CEO Jim Whitehurst said during the company’s earnings call. “I am pleased to report that all of our top 25 deals that were up for renewal in the third quarter not only renewed but they did so at a total value of over 120 percent of the original value.”
Large business deals are also a key metric that Red Hat tracks. Red Hat CFO Charlie Peters noted that during the third quarter, Red Hat had a significant number of large deals with more than half of the top 30 deals at $1 million or more.
A key part of many of the large business deals is the growing importance of Red Hat’s JBoss middleware platforms as part of a total solution sale. Red Hat acquired JBoss in 2006 for $350 million and has been steadily expanding and improving the platform ever since.
“Approximately 50 percent of the top deals included a middleware component, which is a first and demonstrates our ability to effectively cross sell products and solutions to our customers,” Peters said.
The growth in the JBoss business is coming from a number of areas. According to Whitehurst, Red Hat is taking share from rivals as well gaining new workloads on JBoss. Back in 2008, Whitehurst noted that Oracle’s acquisition of BEA WebLogic would end up helping JBoss as enterprises look for options and the same holds true in 2010. With Oracle’s acquisition of Sun and its GlassFish middleware platform, Red Hat is seeing even more gains.
“I think Oracle also acquiring Sun has taken GlassFish out of the mix, as an alternative to moving off an all Oracle’s stack,” Whitehurst said. “So, we continue to see good movement from GlassFish and from WebLogic.”
Whitehurst added that movement to JBoss isn’t just about competitive replacements either. He noted that he is seeing a lot of companies that may have IBM WebSphere or Oracle WebLogic who are also adopting JBoss.
“I should also say, I think when we say JBoss a lot of people thing the application server, but we continue to see great success with our new portal platform with our SOA suite and with our messaging component MRG,” Whitehurst said.
Red Hat recently updated its JBoss Enterprise Portal to version 5.1 including new authoring and workflow capabilities. The JBoss Business Rules Management System (BRMS) was also recently updated to version 5.1, including new complex event processing technology.
The third quarter of Red Hat’s fiscal 2011 also marked the debut of RHEL 6, Red Hat’s flagship Linux platform. With RHEL 6, Red Hat has expanded the performance and scalability of its enterprise Linux platform.
“I don’t want to be so grand as to call it the Unix killer, but I think it certainly blunts virtually any other argument left around using Unix rather than using RHEL,” Whitehurst said. “So I certainly think we put in the features that we needed, the performance we needed and the scalability to certainly takeout any remaining Unix or certainly any of the arguments from why one would chose UNIX over Linux.”
The other key focus of RHEL 6 was enabling it for the virtualized cloud workload of today and tomorrow.
“We figure it (RHEL 6) will be the platform of choice for the general infrastructure workloads as those become more virtualized and more cloudy,” Whitehurst said.