Channel growth propels Red Hat into $1bn club

Bill Gates made to eat his words

Red Hat revealed that 60 per cent of its sales are now coming through the channel as it became the first open-source software outfit to break the $1bn (£629.6m) sales mark.

For its fiscal year to 29 February, Red Hat saw revenue balloon 25 per cent to $1.13bn, putting paid to predictions from – among others – Bill Gates that Linux would never take off in the commercial market.

The New York-listed firm topped market expectations for its final quarter by posting a 7.3 per cent jump in net profit to $36m on revenue that leapt 21 per cent to $297.1m.

Key to this was Red Hat's success in expanding its footprint among existing customers, chief executive Jim Whitehurst said in a conference call, a transcript of which can be found here.

During the quarter, Red Hat renewed 24 of its 25 largest accounts, including a record eight-figure deal with a global bank. Spend with these top accounts more than doubled and all its top 30 deals were worth more than $1m. Three were worth more than $5m, with 12 of the top 30 deals including a middleware component.

"Red Hat's top-line growth indicates that we are gaining market share from our competitors," said Whitehurst.

Red Hat has for years strived to increase its channel, relative to direct sales, and Whitehurst listed "enhancing routes to market" as a key strategic initiative.

For a second year, Red Hat achieved its annual goal of a 60:40 split between channel and direct sales, he revealed, with 59 per cent of billings coming from partners in Q4.

Red Hat's revenue mix is still US-centric though, with 60 per cent of sales coming from the Americas and just 26 per cent from EMEA.

In 2001, Bill Gates famously said: "We think of Linux as a competitor in the student and hobbyist market but I really don't think in the commercial market we will see it in any significant way."

After adding 800 staff last year, Red Hat said it plans to take on 1,000 more in 2012, including at its base in Brno in the Czech Republic. It estimates that Q1 revenue will be between $307m and $311m.

Charles Peters, chief financial officer at Red Hat, said: "We are continuing to invest in areas such as virtualisation, cloud computing, middleware and now storage, but we are also prudently managing costs. We are optimistic about this fiscal year and the forward-looking pipeline continues to look strong."