Bad economy is a gift that keeps giving to Red Hat

Red Hat's fourth-quarter earnings were almost universally good--yet again--suggesting that the company's open-source software and tight focus is paying dividends in a tight economy.

Someone should tell Red Hat that the world has been muddling through a global recession for the past few years. While others' earnings went into a deep freeze throughout the recession, Red Hat has consistently posted strong numbers.

Red Hat's fiscal fourth-quarter 2010 earnings, announced on Wednesday, are no different. Does the company ever get bored of reporting double-digit growth and record billings?

Apparently not.

Red Hat notched its fourth consecutive quarter of exceeding analyst expectations for profits. Highlights from Red Hat's earnings include:

  • $195.9 million in total revenue, up 18 percent from the year ago quarter.
  • Subscription revenue jumped 21 percent (year-over-year) to $169.2 million.
  • The company closed 18 deals worth more than $1 million, plus another three worth more than $5 million.
  • Roughly 60 percent of its top-30 deals included Enterprise Linux Advanced Platform, which is positive for Red Hat as it's more expensive an includes unlimited virtualization, which serves as a hedge against Red Hat's customers defecting to VMware or alternative virtualization offerings.
  • Red Hat renewed 24 of the top 25 deals up for renewal at 130 percent of contract value. (The one nonrenewing customer is a technology vendor that Red Hat declined to name, but a separate division of this customer signed a six-figure deal with Red Hat during the quarter.)
  • The Jboss business accelerated and Red Hat signed a multimillion-dollar deal with a large financial institution for JBoss.
  • Roughly in line with past quarters, Red Hat's revenues broke down geographically as follows: Americas (59 percent), EMEA (26 percent), and Asia-Pacific (15 percent).

For those following along at home, this left Red Hat at $748.2 million in total revenue for fiscal year 2010, an increase of 15 percent over 2009, and subscription revenue up 18 percent over 2009 at $638.7 million.

Not bad for a company that gives all of its software away.

The one downside to Red Hat's earnings were lower-than-expected deferred revenues, which sent the company's stock down slightly in after-hours trading, as it reflects slowing growth. Shares fell 2.6 percent to $29.90 after closing at $30.70.

It also reported a small decline in training and services revenue, but that might actually be a positive indication that customers are increasingly comfortable with Linux and don't need Red Hat's assistance.

It also might reflect, as IDC's Al Gillen has speculated, a trend toward unpaid Linux adoption , but if that's the case, such adoption doesn't seem to be affecting Red Hat's earnings, which remain consistently strong. Enterprise appear to be happy to continue paying Red Hat for the value it provides in operating systems and middleware.

Indeed, Red Hat CEO Jim Whitehurst pointed to the company's JBoss middleware business as critically important to the company's growth in fiscal year 2011, indicating that Red Hat isn't a one-trick Linux pony, and plans to invest in JBoss even as it presses forward on virtualization and cloud computing.

Disclosure: My employer, Canonical, competes with Red Hat in some markets.

About the author

    Matt Asay is chief operating officer at Canonical, the company behind the Ubuntu Linux operating system. Prior to Canonical, Matt was general manager of the Americas division and vice president of business development at Alfresco, an open-source applications company. Matt brings a decade of in-the-trenches open-source business and legal experience to The Open Road, with an emphasis on emerging open-source business strategies and opportunities. He is a member of the CNET Blog Network and is not an employee of CNET. You can follow Matt on Twitter @mjasay.

     

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