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Red Hat's billion-dollar year

The software developer becomes the first open-source company to generate $1bn in annual revenue.

Two years after Red Hat held its initial public offering in 1999, Bill Gates dismissed Linux, the free operating system, as a mere “competitor in the student and hobbyist market”: “I really don't think in the commercial market we'll see it in any significant way,” he said. 

At the time, it was unclear how money could be made from open-source software. Though it was used by tech-savvy computing enthusiasts and academics, it was viewed with some scepticism by the mainstream; potential investors, meanwhile, were puzzled by the idea of giving away the source code of programmes for nothing.

But now, a decade on, the US software company Red Hat has become the latest member of the billion-dollars-a-year club, reporting total revenue for the fiscal year 2012 of $1.13bn – an increase of 25 per cent over the year. This is a first for the open-source sector.

Red Hat reported net income of $36m for the fiscal fourth quarter ended 29 February 2012 (an increase from $33.5m for the same period last year) and total revenue of $297m. For the full year, net income was $146.6m (2011: $107.3m). As of 29 February 2012, cash and investments were $1.3bn.

Jim Whitehurst, president and CEO of Red Hat, attributed the strong results to the company's “investments to expand [its] geographic sales footprint and add sales people with targeted industry and product knowledge”. 

Charlie Peters, executive vice-president and CFO of Red Hat, said: “Our strategy for growth, coupled with relentless day-to-day execution of the business, has been successful. We experienced a significant increase in large deals, both in Q4 and for the full year which contributed to annual organic growth of 25 per cent in revenue, 33 per cent in non-GAAP operating income and 35 per cent growth in operating cash flow.”

Operating income for the fourth quarter was $48.5m and $199.9m for the full fiscal year. Operating margin was 16.3 per cent in the fourth quarter and 17.6 per cent for the full year.

Operating cash flow was $128m and $391.9m for the fourth quarter and full year, respectively. At the end of the fiscal year, the company’s total deferred revenue balance was $946.7m, an increase of 23 per cent on a year-on-year basis and 16 per cent sequentially.