It appears as if Linux is really catching on. Red Hat (NYSE:RHT), the world's largest distributor of commercial Linux products, released strong first-quarter 2014 results that showed that the company managed to beat both top- and bottom-line consensus estimates. Revenue grew 17% to $423.8 million, while GAAP net income fell to $37.7 million, or $0.20 earnings per share, after adjusting for amortization expenses, stock-based compensation, and transaction costs. On a non-GAAP basis, net income was $0.34, $0.01 better than the consensus estimate of $0.33.

Red Hat recently released its much-awaited Red Hat Enterprise Linux 7, or RHEL 7, that will run on everything from servers and data centers to the cloud. There was also a lot of hoopla surrounding its release of RHEV 3.4 for servers and a desktop update, which was applauded as a big step up from the previous version. But, just how big is Red Hat's share of the virtualized server market? How does the company stack up against VMware (NYSE:VMW), Microsoft (NASDAQ:MSFT), and Citrix (NASDAQ:CTXS), three of its biggest competitors?

Red Hat's hypervisor goes by the name KVM; VMware's is known as ESX/i. Microsoft's is Hyper-V. Citrix's is called the Xenserver. While VMware is the king of virtualized servers, it's rather hard to get concrete data that shows the actual market shares of the market leaders.

2013 Virtualized servers market share
Gartner usually provides breakdowns for physical server shipments by company, but does not do so for virtualized servers. The organization, however, pointed out that physical servers will continue to be replaced by virtualized servers in 2014.

IT Candor is a company that tracks shipments of both physical and virtualized servers. According to the company, 15 million server units were shipped in 2013, of which 5.3 million units were virtualized.

Focusing on virtualized servers, here is how the market leaders performed in 2013:


Units of Virtualized Servers Shipped in 2013

% of Virtualized Server Market







Red Hat









Source: IT Candor

The total server market was $56 billion in 2013, of which $31 billion came from physical servers, and $25 billion came from virtualized servers. The virtualized server market is, therefore, 80% the size of the physical server market. Sales of physical servers fell 8%, while those of virtualized servers remained static.

The study also says that 25 million virtual machines were shipped in 2013, but does not break down the figure according to company shipments. In comparison, 15 million physical servers were shipped. It's worth noting that the Linux servers are increasingly dominating physical servers and represented 28% of server revenue by the end of 2013, 2.5 points better than the previous year. In comparison, Windows servers represent 50% of all server revenue.

According to Trefis analysts, VMware's virtualized market share has been steadily falling since 2008, while that of Microsoft and Red Hat has been on the rise. Hyper-V is much cheaper than vSphere, KVM is bundled with a RHEV hypervisor subscription, while Xen is free.

One of the biggest takeaways from Red Hat's first-quarter 2014 results was that its subscription revenue grew 18% to $372 million, accounting for 88% of the company's overall revenue. It therefore appears as if the company's strategy of bundling its KVM servers with its RHEV subscriptions is working great.

Virtualization is the new default in data centers
A study done by 451 Research late last year found that while spending on IT infrastructure has been slowing down, spending in server-virtualization projects was still going strong, with 59% of respondents saying they intended to spend more on such projects in 2014. As hypervisors begin to commoditize, the differentiation will mainly be at the cloud system software and management layers.

Red Hat is trying to differentiate itself from its competitors with its new RHEV 3.4 and RHEL 7 offerings. The company seems to be on the right growth path.

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