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52-Week Highs For Red Hat And NetApp

Posted on Thursday, Jan 6th 2011

According to Gartner, open source solutions providers are expected to benefit from strong growth in the coming years. By 2015, open source software will be used to enable over 60% of Platform-as-a-Service (PaaS) offerings. By 2016, open source software will be included in the mission-critical software portfolios of 99% of the Global 2000 enterprises, compared with 75% in 2010. Also by 2016, 50% of leading non-IT organizations will use open source as a business strategy to gain competitive advantage. Open source player Red Hat is already enjoying a good run.

Red Hat’s Financials
Red Hat’s (NASDAQ:RHT) Q3 revenues increased 21% to $235.6 million compared with the market’s estimates of $227 million. Subscription revenues increased 21% over the year to $198.8 million. During the quarter, the top 25 deals were renewed at 120% of their previous value, not because of price increases, but because of Red Hat’s ability to grow their footprint among existing customers. The market was expecting revenues of $212 million. EPS of $0.20 met the market’s projections for the quarter.

Red Hat forecasts Q4 revenues of $234 million–$236 million compared with the Street’s projected $228.4 million. EPS of $0.21–$0.22 is also ahead of the Street’s forecast of $0.20. Red Hat projects it will end the year with revenues of $898 million–$900 million, exceeding the Street’s target of $888 million. EPS for the year is projected at $0.78–$0.79, ahead of the Street’s consensus of $0.77.

Red Hat’s Cloud Computing Offerings
Red Hat agrees with Gartner’s views and continues to invest in cloud computing. The company recently acquired Makara, a start-up provider of solutions that help organizations deploy, manage, monitor, and scale applications on both private and public clouds. Red Hat expects the acquisition to help accelerate the development of their PaaS offering, a part of their Cloud Foundation portfolio. The integration of Makara’s Cloud Application Platform with Red Hat’s JBoss Enterprise Middleware infrastructure is expected to simplify application deployment and management of cloud applications.

Red Hat’s Competition
Competition in the server market remained tough for Linux vendors. According to IDC’s research, Windows servers had a 47.7% market share in Q3 with revenues of $5.6 billion, increasing 26% over the year. Linux servers represent 17.5% of industry revenues, and Q3 revenues grew faster at 32.6% to $2.1 billion. According to the Global Equities Research, for every eight new project starts, five occur on Red Hat’s Linux platform and three on Microsoft’s platform. Red Hat is focused on winning market share and continued to innovate in the market. They recently released Red Hat Enterprise Linux 6 (RHEL 6) platform, which has received positive reviews and has strong hardware partnerships with multiple vendors including HP, IBM, and Fujitsu to help grow market share.

Meanwhile, Novell, which was in talks with VMWare to sell its Linux business, went through a private equity buyout. Attachmate, an investment group led by Francisco Partners, Golden Gate Capital, and Thoma Bravo, bought out Novell and has not yet made public their plans for Novell’s Linux segment. According to reports, the investor group plans to run the two businesses separately and sell both of them later. Red Hat must be relieved, at least temporarily, because if Novell’s Linux business were bought by VMWare, Red Hat would have been facing stiffer competition.

Red Hat’s stock is trading at $46.55 with a market capitalization of $8.8 billion. It touched a 52-week high of $49 last month.

NetApp’s Financials
Storage and data management solutions provider NetApp (NASDAQ:NTAP) saw Q2 revenues grow 33% over the year to $1.207 billion. The Street was expecting revenues of $1.19 billion. EPS of $0.52 was also ahead of the market’s projected EPS of $0.49.

For the current quarter, NetApp is projecting revenues of $1.24 billion–$1.29 billion with EPS of $0.48–$0.50. The Street projects revenues of $1.26 billion with EPS of $0.51.

NetApp Continued To Form Strategic Tie-ups
During the quarter, NetApp continued to tie up with other players to improve IT efficiency for their customers. They extended their relationship with VMWare by integrating their unified storage technologies with VMWare View to help customers improve storage efficiency, virtual desktop scalability, and performance. Together, the two companies released a new solution for mid-sized enterprises to consolidate and virtualize their Windows environments to deliver enterprise-class IT as a service.

NetApp tied up with Fujitsu to extend their existing partnership to offer a shared portfolio of products to meet the integrated storage needs of their customers. Fujitsu will expand its resale of NetApp unified storage systems to more markets worldwide.

The stock is trading at $57.87 with market cap of about $20.9 billion. It touched a 52-week high of $57.78 earlier this week.

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