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Red Hat, Net App Surpass Expectations

Posted on Friday, Oct 15th 2010

A recent study conducted by Accenture on open source solutions found that two-thirds of the three hundred organizations studied anticipate increasing investment in open-source solutions during the year. Further, more than a third of these companies expect to migrate mission-critical software to open source within the next year. No wonder open source leader Red Hat (NASDAQ: RHT), is already witnessing strong growth in revenues.

Red Hat’s Financials

Red Hat’s (NASDAQ: RHT) Q2 revenues grew 20% to $219.8 million with subscription revenues growing 19% over the year. New subscriptions grew 21% over the year and they saw a 100% renewal rate for the top accounts in the quarter. The market was looking for revenues of $212 million. EPS of $0.19 was also a cent higher than the market’s projections of $0.18.

Red Hat is looking at Q3 revenues of $226 million-$228 million with EPS of $0.19-$0.20. The market was projecting revenues of $216 million with EPS of $0.19. Red Hat expects to end the year with $855 million-$877 million revenues and EPS of $0.76-$0.77. The Street was looking for revenues of $855 million with EPS of $0.74.

Red Hat’s Cloud Computing Offerings

Red Hat recently introduced developments in their Cloud Foundations portfolio that promote consistency between enterprise applications in the cloud. Their cloud strategy aims at delivering the Cloud in the form of a platform-as-a-service that lets customers build and run applications across physical servers, virtual platforms, private cloud and multiple public clouds. They are aligning all of their products with the cloud and are positioning themselves as an open source cloud provider to compete with Microsoft’s Azure platform. Red Hat is already seeing good traction within the segment and during the quarter closed a $1 million plus deal for private cloud management with a customer.

Meanwhile, competition with VMWare is expected to heat up. Novell, the second largest open source player, has put up its Linux business for sale and VMWare, the virtualization giant, is considering the purchase. If the deal goes through, Red Hat’s virtualization services will face stiffer competition from VMWare, a competitor the company was already wary of. It makes me reiterate the need for Red Hat to strengthen its market position with an open source roll-up with companies like Collabnet and SugarCRM.

Red Hat’s stock is trading at $38.64 with a market capitalization of $7.3 billion. It touched a five-year high of $41.74 earlier last month.

Net App Financials

Storage and data management solutions provider, NetApp (NASDAQ:NTAP) too managed to surpass market expectations. For Q1, revenues of $1.14 billion grew 36% over the year and exceeded the market’s projections of $1.13 billion. EPS of $0.49 was also a cent higher than the market’s expectations.

For the current quarter, Net Apps is projecting revenues of $1.16-$1.21 billion with EPS of $0.47-$0.50. The Street was looking for revenues of $1.17 billion with EPS of $0.47.

Net App’s partnerships with Microsoft, Cisco and VMWAre

During the quarter, NetApp continued to expand their strategic relationships with Microsoft and other partners to help customers and service providers make the transition to a cloud computing environment. They closer integration with Microsoft will help simplify management of virtualized environments and building of internal and public clouds by joint customers and service providers.

They also tied up with Cisco, and VMware to unveil an end-to-end Fibre Channel over Ethernet (FCoE) solution for the dynamic data center. The FCoE is a key protocol in delivering a unified data center fabric and can provide savings by reducing the number of adapters, cables, and network infrastructure devices needed in a dynamic data center. NetApp is looking to expedite customer progress to the cloud and improve data efficiencies by validating NetApp FCoE solutions and Cisco data center switches to support VMware virtualized environments.

Net App stock is trading at $48.04 with market cap of about $17.2 billion. It too had reached a five year high of $51.40 earlier last month.

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Great commentary on ntap. I think that cisco will acquire them shortly.

Dave Sunday, October 17, 2010 at 1:58 PM PT