A Red Hat Packed With Dynamite

This quarter was all about constructing the fireworks of the future for Linux vendor Red Hat (NYSE: RHT  ) . You don't see much happening at the moment, but all the ingredients for a massive eruption are there.

In its first quarter of fiscal 2009, Red Hat produced $0.08 of GAAP earnings per share on revenue of $156.6 million. That's a 32% sales increase over last year, while profits held steady. But the numbers don't tell the whole story here.

The open-source software veteran released major updates to four of its key products and re-signed every expired contract with its 25 largest subscribers -- for 50% more than the worth of the old deals. It's always cool to see the big boys upgrading their pacts, don't you think? Red Hat continues to invest in its global sales and support infrastructure, funding the growth from organic cash flows.

And if you doubt that the hackeriffic Linux platform is ready for a hard sell into the corporate space, consider that NYSE Euronext (NYSE: NYX  ) now runs its trading operations on Red Hat-powered machines. "Red Hat is as pervasive as water gear," said NYSE CIO Steve Rubinow, according to Red Hat's earnings call comments. "It is part and parcel of everything we do here from a computing standpoint." You can't ask for a stronger endorsement than that, especially since it comes from the traditional-minded Big Board boys at the heart of Wall Street.

Red Hat's efforts to scale up its business model positions the company for years of upcoming growth, at a time when Microsoft (Nasdaq: MSFT  ) seems to have botched its latest and greatest operating system launch. It also helps non-Windows competitors like Novell (Nasdaq: NOVL  ) and Sun Microsystems (Nasdaq: JAVA  ) in a roundabout way, by growing the Linux/Unix market into spaces where you might not have seen them before.

For now, it's all about the enterprise space. But remember that Apple (Nasdaq: AAPL  ) ships every Macintosh with a Unix-derivative operating system installed, and common people don't seem to have any problem adjusting to its quirks and advantages. One day, Red Hat will lead an assault on the consumer space, too, and you ain't seen nothing yet. This is a packet of explosive growth just waiting for a spark.

Further Foolishness:

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Fool contributor Anders Bylund holds no position in any of the companies discussed here. You can check out Anders' holdings if you like, and Foolish disclosure runs Ubuntu on its private servers. So there.

Read/Post Comments (2) | Recommend This Article (4)

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 27, 2008, at 1:52 AM, TheRealBarber wrote:

    There's a bit of an inconsistency in this article. On the one hand, it stipulates that RedHat will break out into the desktop consumer space. On the other hand, it says that RedHat's success will help a Unix vendor like Sun. But at this point, hurting M$FT in the home doesn't help Sun. In fact, neither RedHat nor anything else on God's green earth can help Sun. Schwartz and his band of suckups were recently named by 24/7 WallSt as the worst management team of the year. And I think that this was kind. More like the worst of the decade!

    The Barber, the man Schwartz fears most

  • Report this Comment On July 13, 2008, at 8:20 AM, dlweinreb wrote:

    You seem to be implying that because MacOS is accepted, that means that people have to Unix's quirks and advantages. But applying the experience of MacOS to Red Hat Linux is not necessarily valid.

    Usability of a desktop computer (especially to non-professionals) depends a lot on (a) the user experience and (b) the availability of widely-used plugins, applications, and utilities.

    MacOS X and Red Hat Linux have little in common in these aspects. Desktop Linux is getting better and better, but there are still serious problems with software availability. So much useful software is made for Windows, regardless of the pros and cons of Windows per se.

    As for the success of Linux to corporations, that's true, but they're used much more as servers than as desktop or laptop machines. In a server, the "user experience" is less important (if it exists at all), and the lack of apps matters far less since the server just runs a very small amount of software. And server software utilities and tools are, in fact, widely available for Linux.

    So it's very important to make these distinctions. But I enjoyed the article, and wish Red Hat and Linux extremely well. If those problems with desktop Linux get alleviated enough, I'm switching to it!

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