Red Hat Gives Linux a Lift
On March 23, Red Hat reported impressive financial results for the fourth quarter and fiscal year 2004. Highlights included an 11 percent revenue increase over the third quarter and a year-over-year increase of 43 percent, a net income that rose 22 percent over the prior quarter (though year-over-year net income growth was flat), 87,000 new subscriptions for Linux technologies, 90 percent renewal rates for Red Hat Enterprise Linux, and an operating profit that came in at 12 percent of the company's total revenue.
Analysts from three different brokerage firms already had upgraded Red Hat since December, and the earnings report boosted the company's stock price to just over $20 per share, a number that has continued to increase to just under $26 at press time.
Other companies have garnered ancillary benefits from Red Hat's surprisingly strong quarter. Novell, for example, has seen its stock price inch upward in recent weeks. When the vendor first announced its Linux strategy last year, a number of financial analysts wondered whether the plan was more hype than substance. But they're starting to come around with guarded praise, and Merrill Lynch analyst Jason Maynard went so far as to pronounce Novell "back from the dead."
But has Linux truly arrived? Stories have begun to pop up about Linux expanding from the enterprise into consumer electronics, cars, cell phones and other devices. Various pundits have speculated that Microsoft's dominance in the operating-system space could be weakened by the $612 million fine it got from the European Union, opening the door to a possible Linux insurgency on the desktop delivered by Hewlett-Packard and others.
Resellers are watching the situation closely. By now, most enterprise-oriented VARs have deployed Linux somewhere in their practices. But that doesn't mean they're ready to scrap everything else. Totality, a managed-services solution provider in San Francisco, uses Linux in some of its own systems and has deployed the technology with some of its customers as well. "We're managing it for a couple of customers that have taken the gamble in their high-transaction volume systems," says Totality CEO Kelly Rodrigues.
The word "gamble" hints at Linux's perceived limitations. Rodrigues says the need to have Linux-trained technicians available during and after an open-source migration project is a key. "If backup procedures aren't in place, it can compound the problem of not having technicians who are familiar with the technology," he says.
He adds that the much-ballyhooed total cost of ownership advantage--open source's key selling point until now--actually doesn't come into play until well after a migration is complete.
Red Hat's strong earnings show that Linux has surpassed a certain level of legitimacy. But most observers probably would have a similar reaction to the company's fourth quarter: Congratulations. Now, keep it up.