Red Hat And NetApp Reap Cloud Computing Momentum

According to Gartner, 2010 IT spending on cloud computing is expected to increase 17% over the year to $68.3 billion. By 2014, that number is expected to grow to $148.8 billion. The open source leader Red Hat (NASDAQ:RHT) is already benefiting from the addition of a virtualization layer to its software products with giants such as IBM and Google using Linux for their cloud computing products and online software applications.

Red Hat’s Q1 revenues grew 20% over the year to $209.1 million, driven by strong growth in the American market despite the weakening euro revenues, and growing traction of the company’s cloud and virtualization offerings. EPS rose 20% to $0.18 from the $0.15 earned a year ago. The market was expecting revenues of $202.9 million with EPS of $0.18.

Red Hat is focusing on growth through cloud computing and virtualization offerings. It recently tied up with Cisco to integrate Red Hat Enterprise Virtualization software with Cisco’s virtual network link technology to provide superior performance, greater network visibility, and more control to customers at a much lower cost. The integrated solution is expected to be available from Red Hat and Cisco by late 2010.

To assist customers in migrating to the cloud, Red Hat is also working with cloud providers and is providing support to their customers to ensure that the applications certified on standalone RHEL and JBoss software are compatible with certified public or private clouds.

Further, the company is working on its latest release, Red Hat Enterprise Linux 6 (RHEL 6), scheduled for release later this year. The platform is currently in beta stage and is touted as one of Red Hat’s most ambitious projects as it is designed to address all physical, virtual, or cloud requirements. RHEL 6 should help customers to address fully integrated, secured virtualization, and cloud deployments.

Red Hat expects revenues of $210 million–$212 million for the current quarter compared to the market’s estimated $207.5 million.

If market rumors are to be believed, it looks as though Red Hat is also exploring its growth into the systems management market through the acquisition of Groundwork Open Source, a provider of one of the more widely deployed commercial open source based IT management and network monitoring solution. The company’s management is keeping quiet on the news. I would like to see Red Hat strengthen its market position with an open source roll-up of companies such as Collabnet and SugarCRM.

The stock is trading at $30.86 with a market capitalization of $5.8 billion. It touched a 52-week high of $32.52 earlier last month.

Cloud computing and virtualization are also helping drive up earnings for the storage and data management solutions provider NetApp (NASDAQ:NTAP). An IDC report for Q1 points to growth in the external data storage market. Revenues of $5 billion for the quarter grew 17% over the year, and the total storage market revenues, which includes internal systems, grew 19% to $6.7 billion.

For Q4, NetApp announced revenues of $1.17 billion compared with $0.88 billion earned a year ago. EPS of $0.50 also grew significantly over previous year’s $0.31. The Street was expecting revenues of $1.09 billion with EPS of $0.44. For the fiscal year 2010, revenues grew 15% to $3.93 billion with EPS rising to $1.51 compared to $1.09 earned last year.

During the quarter the company expanded key partnerships and introduced new solutions such as data protection as a service and backup and recovery as a service to drive customers’ virtualization and cloud-based infrastructures. It extended its partnership with CA Inc to integrate its offerings and develop management solutions for public and private cloud environments.

NetApp also recently completed the acquisition of Bycast, a privately held Canadian company that develops object-based storage software designed to manage petabyte-scale, globally distributed repositories of images, video, and records for enterprises and service providers. NetApp is looking to expand its leadership position in unified storage by adding an object-based storage software offering through this acquisition.

For Q1, the company projects revenues of $1.1 million–$1.14 billion compared with the Street’s estimate of $1.04 billion. EPS of $0.43–$0.47 was also higher than the market’s projected $0.37.

The stock is trading at $39.00 with market cap of about $13.7 billion. Its 52-week high was $41.87, reached in June.

A robust technology sector is moving forward on the wings of cloud computing adoption. Gartner estimates that during the next five years, enterprises will spend a total of $112 billion on software as a service (SaaS), platform as a service (PaaS), and infrastructure as a service (IaaS). Little wonder, then, that Red Hat and NetApp are investing heavily in cloud computing and that companies such as Salesforce.com, SuccessFactors, Taleo, Concur, RightNow, VMWare and ProofPoint, to name but a few, are also benefiting from this trend.