How much of Red Hat’s $2 billion in revenue will come from cloud?
Red Hat, the company behind a flavor of the Linux operating system popular with businesses, should hit $2 billion in revenue this year, chief executive Jim Whitehurst told analysts on the company’s second quarter earnings call Monday.
But how much of the pie will come from Red Hat Enterprise Linux (RHEL), OpenShift, or other products running in the cloud is an open question.
And now, Red Hat, like every other tech company, is managing a shift in customer workloads from on-premises facilities to cloud deployment where the customer may not own or operate the servers running its workloads. Some of those workloads are flowing to shared public cloud infrastructure run by Amazon (AMZN) Web Services, Microsoft (MSFT), Google (GOOG) or perhaps another provider.
How much of Red Hat’s revenue now comes from cloud is a tricky question: Red Hat itself may not know where a given customer is using RHEL which can run on Amazon Web Services or Google Cloud Platform. Microsoft Azure, the third major public cloud player, does not yet offer RHEL, even though sources close to both vendors say that is something many customers want.
The issue here is that Microsoft and Red Hat compete in the server operating systems in the on-premises world where Windows Server and RHEL are top dogs. Asked on the call if RHEL will come to Azure, Whitehurst seemed to indicate this will be a customer-driven decision.
“It’s hard for me to talk about a specific provider. We have over 100, we just recently added VMware (VMW) vCloud Air. So you can imagine Microsoft in the history around it, it’s a different beast. But I hope we can — we expect to and we’ll have our platform running anywhere our customers want to run it.”
Clearly it’s in Red Hat’s interest to make RHEL ubiquitous on all the major public cloud platforms. And, on the call, he noted that one reason the company blew by the high-end of its revenue guidelines (by $8 million) was “upside in our public cloud business.”
He also hedged that a bit, noting that while some business customers run RHEL on a public cloud, they’re doing so mostly to develop and test new applications and when it’s time to run them in production, they tend to bring them back in house.
“We’re not seeing a lot of people saying, hey, ‘I’m taking an existing application and moving it into the cloud.’ It’s more new workloads [being] built to run either permanently or often temporarily in the cloud until they settle down the performance characteristics, and the intention is moving it back in.”
That comment illustrates how warily legacy IT companies are eyeing cloud computing. Some view themselves as arms dealers to other cloud providers, providing the software, computing and networking gear to run the cloud infrastructure. Some are building their own clouds to compete with those providres. Some are doing both.
Unfortunately for players like Cisco (CSCO), Hewlett-Packard (HPQ), Oracle (ORCL), and IBM (IBM) the massive public cloud players Amazon and Google are not buying high-end name-brand hardware. Instead, they opt to run tens of thousands of low-cost, easily replaceable commodity boxes and free open-source software that they adapt for their own needs. So, while Amazon and Google run a lot of Linux to power their own clouds, it’s not Red Hat Linux.
Whitehurst maintained that Red Hat, nonetheless, is on the right side of history. Speaking on CNBC after the call, he said that the cloud trend favors his company, although that may not be obvious to the casual observer.
“It’s hard to break out cloud from mobile. So much of cloud is driven by mobile data. the compute [behind mobile apps is running somewhere else with the presentation layer on your phone. Cloud is an esoteric term but it’s the other side of where your apps are running and the vast majority of cloud requires open source.”
He cited a deal Red Hat inked with Samsung last quarter to bring enterprise applications to mobile devices as an example of how Red Hat can play in this new world.
Still, Red Hat’s issue is that while open-source software in general, and Linux in particular, is indeed huge in cloud, how much of that Linux is RHEL is a very big question.
For more on cloud computing, see the video below.
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