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Red Hat On A Roll

Red Hat reported revenue of $397 million in its third quarter, endeding Nov. 30, up 15% over the same period last year. Net income was $52 million or 27 cents per share, compared to $35 million or 18 cents per share in the same quarter a year ago.

The revenue slightly outstripped the 14% increase in business operating expenses, including sales and marketing and research and development, Red Hat CEO Jim Whitehurst reported after the close of trading Thursday. Red Hat became the software industry's first $1 billion open-source company last year, its fiscal 2013. It is currently reporting fiscal 2014.

Red Hat shares were up slightly during the day at $49 in advance of its quarterly earnings report. After the report, shares rose 11% in afterhours trading to $54.40. Red Hat continues to convert more customers to its longer-term subscription pricing, which now constitutes 86% of revenue and is usually taken as a sign of subscription-company health.

[Red Hat is looking to developer platform OpenShift to compete. See Red Hat Takes On VMware For PaaS Crown.]

Red Hat appears to be gaining lift from two wider industry trends as well as its own sales efforts.

Red Hat's Jim Whitehurst.

The x86 server architecture has resumed taking over a larger share of the datacenter, according to IDC market research. It gained 2.8% of the server market by revenue and now constitutes 79% of sales. The trend favors both Linux providers and Windows. Twenty-eight percent of all servers shipped by manufacturers, a category that includes both x86 and non-x86, run Linux, while 50% run Windows. Unix servers, such as Oracle's Solaris/Sparc-based units or IBM's AIX/Power-based units, constituted just 11% of server revenue. The total for all server sales declined year-over-year by 3.7%, IDC reported.

The increasing use of x86 servers in public and private cloud computing configurations also favors Linux. Many white-box servers produced without a major manufacturer's brand are shipping to web companies, such as Google or Facebook, or public cloud providers, such as Rackspace or Amazon Web Services.

The gains are actually a little stronger, if you look at third-quarter billings, which were booked but not all collected in the third quarter, according to Charlie Peters, Red Hat's CFO. Billings were $453 million, up 19% over the year ago quarter. "We experienced an acceleration in our billings proxy growth in Q3, both year-over-year and sequentially, due in part to the strengthening of our European and U.S. federal government businesses," he said in the earnings announcement.

Red Hat's Enterprise Linux and JBoss middleware "address the high-growth opportunities in the data center to modernize and move away from legacy proprietary software in order to deploy hybrid cloud technologies," Whitehurst said.

Red Hat faces growing competition from Canonical's Ubuntu, which is also popular in developer cloud deployments. Oracle Linux, based on the CentOS copy of Red Hat, is also used by database customers to run Oracle systems. Suse Linux includes the latest version of OpenStack, Havana, in its Suse 13.1 release.

Charles Babcock is an editor-at-large for InformationWeek, having joined the publication in 2003. He is the former editor-in-chief of Digital News, former software editor of Computerworld, and former technology editor of Interactive Week.

Emerging standards for hybrid clouds and converged datacenters promise to break vendors' proprietary hold. Also in the Lose The Lock-In issue of InformationWeek: The future datacenter will come in a neat package. (Free registration required.)