Red Hat's Good Quarter: What's the Problem?
Is good news from Red Hat really good news for Red Hat?OS Roundup: The enterprise Linux heavyweight posted some great numbers this quarter, but is good news from Red Hat good news for Red Hat?
The enterprise Linux maker revealed some stonkingly good quarterly figures last week, laughing in the face of the global downturn and making the Linux vendor that relies on Microsoft's trust fund money (Novell, in other words) look like a right old Charlie.
Red Hat announced revenues of $174 million for its first quarter ending May 31st, up 11 percent on the same period last year. Underlying that were subscription sales the lifeblood of the company up 13.8 per cent to $148.8m, although training and services revenues were down slightly. And the company was profitable: overall Red Hat made $18.5 million in the quarter up 7.1 per cent over the same period last year.
So what's the problem?
The first thing you have to wonder about is where all this business will keep coming from. On Red Hat's earnings call the top bods in the company were apparently keen to write off OpenSolaris, putting forward the argument that businesses that desert Solaris aren't moving to Sun's pet open source project, and instead are deserting Sun's Unix for Linux, and Red Hat in particular.
How long can that boost to business last? The global move from Unix to Linux is no longer a new phenomenon and one that can't be relied upon to fuel Red Hat's growth in the future. Sooner or later it will have to confront the beast of Redmond. Matt Asay puts it like this on his Open Road blog:
"Today very little of [Red Hat's] sales come at Microsoft's expense. At some point in the not-so-distant future, the UNIX-replacement business will slow and Red Hat will need more than JBoss to compete with Microsoft."
You've got to be big to compete with Microsoft, and it's unlikely that Novell, maker of SUSE Linux Enterprise Server, is up to the task. Not least because it relies on Microsoft's generosity in subsidizing SLES. A company the size of Oracle/Sun might be able to go toe to toe with Redmond, but Red Hat certainly cant.
Unless, of course, someone big buys Red Hat. You have to admit that it has that air of inevitability about it. Right now the market values Red Hat at $3.8 billion rather a lot really when you realize that there's really just a small software vendor hiding underneath that hat which, let's face it, doesn't make a whole lot of money.
The market must be inflating the company's worth for a reason. If the future for systems is integrated platforms, as Timothy Prickett Morgan posits in The Register, then, "Dell has to buy Red Hat, since it has no operating system, middleware, or database of its own."
I don't know about Dell, but there must be a few companies looking at Red Hat and running through the numbers right now. Red Hat's results may look encouraging, but that doesn't mean that the company's days as an independent aren't numbered.
Paul Rubens is a journalist based in Marlow on Thames, England. He has been programming, tinkering and generally sitting in front of computer screens since his first encounter with a DEC PDP-11 in 1979.