Red Hat's Results Underscore its Growing Focus on OpenStack

by Ostatic Staff - Sep. 26, 2016

Late last week, Red Hat reported earnings per share of 55 cents on revenue of $600 million, beating estimates of 54 cents and $590 million, respectively. One thing that went unsaid across much of the coverage is that the company is in the midst of a major shift in its strategy toward OpenStack-based cloud computing, and it looks like service revenues and positive momentum from that effort are starting to arrive.

"Our growth was driven in part by expanding our footprint with customers as we closed a record number of deals over $1 million, up approximately 60 percent year-over-year," Red Hat CEO Jim Whitehurst said during his company's earnings call. Seven of the top 30 deals had OpenStack in there, nine had RHEV," Whitehurst said. "We had three OpenStack deals alone that were over $1 million. So I think we're seeing really, really, really good traction there."

This report marked the first time that Red Hat has put such specific numbers on its OpenStack efforts, and it seems clear that maintaining its OpenStack distribution and providing strong support for it are going to be key drivers for the company going forward.

Going forward, Red Hat provided third quarter guidance revenue to be in the range of $613 million to $623 million. Much of that needs to be driven by OpenStack deals and renewals of support subscription revenues.

Meanwhile, Red Hat is also spreading out with its OpenStack-related dealmaking. IBM and its Power Systems division are cozying up to Red Hat. Through joint engineering and deeper product collaboration, the two companies plan to deliver solutions built on key components of Red Hat's portfolio of open source products, including Red Hat Enterprise Linux, Red Hat Virtualization, and Red Hat Enterprise Linux High Availability offerings. IBM wants its Power Systems to be a featured component of Red Hat's hybrid cloud strategy.

"Clients choose open source capabilities to achieve new levels of agility and flexibility in their hybrid cloud environments, but they need access to optimal support," said Scott Crowder, CTO, IBM Systems. "Clients have long turned to Red Hat and IBM to support their enterprise computing needs. Now, we are expanding that relationship with Red Hat to provide new systems designed for enterprise-grade open source solutions that go far beyond what commodity infrastructure has offered."

That’s the upshot from Red Hat’s latest status report: More and more, the company’s future is tied to cloud computing and OpenStack.