Red Hat's billion-dollar year

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

Red Hat's headquarters in Raleigh, North Carolina.
Red Hat's headquarters in Raleigh, North Carolina.

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.