Red Hat Puts On Its Growth Hat

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Open source is the future.

That was the takeaway from my exclusive phone interview with Red Hat (NYS: RHT) CEO Jim Whitehurst after the company reported second-quarter earnings last night.

Revenue for the quarter tallied up to $281.3 million, up 28% year over year while non-GAAP net income was $56.5 million, or $0.29 per diluted share, rising 53% from last year. Non-GAAP operating income jumped 41% to $76.4 million, resulting in an 18.7% operating margin. The company's total deferred revenue balance, an important precursor to sales, rose 25% to $813.2 million and billings grew 30%.

During our conversation, Whitehurst stated:

We're seeing an acceleration across our business across all geographies. There's a general view that Linux is going to be a long-term winner in the operating system category. The next generation of computing is going to be based on open source computing. In general, the engines of innovation in IT are changing; open source is driving that next generation of innovation.

The company is on track to hit its goal of surpassing $1 billion in revenue for fiscal 2012, and has raised its guidance to a range of $1.12 billion to $1.13 billion. Whitehurst also pointed out that the company has already generated just over $1 billion in sales over the past four quarters.

He also mentioned that the two most important metrics to gauge Red Hat's performance are top-line revenue and billings growth, which increased 28% and 30% respectively, as noted above. Operating margin is taking a back seat because the company can adjust it based on how much it chooses to reinvest in future growth.

Looking forward, VMWare (NYS: VMW) is likely to be Red Hat's primary competitor in virtualization. Whitehurst outlined three primary advantages that his company has over VMWare: higher performance, more open and broader ecosystem of support, and dramatically lower cost.

When you look at the mobile space and what Google (NAS: GOOG) has accomplished with Android, it adds some context to Whitehurst's bullishness. Even Samsung is considering taking its mobile OS, Bada, open source next year. As open source continues to gain traction throughout the operating system world, Red Hat will be right there making money on free software.

At the time this article was published Fool contributorEvan Niuholds no position in any company mentioned.Click hereto see his holdings and a short bio. The Motley Fool owns shares of Google.Motley Fool newsletter serviceshave recommended buying shares of VMware and Google. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.

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