About Red Hat, Inc.
Red Hat flips its lid for open-source computing tools. The company dominates the market for Linux, the open-source computer operating system (OS) for enterprise computing infrastructure and applications. In addition to its Red Hat Enterprise Linux OS, the company's product line includes database, content, and collaboration management applications; server and embedded operating systems; and software development tools. Red Hat also provides consulting, custom application development, support, and training services. The company's business model is a mix of providing free, open-source software paired with subscription-based support, training, and integration services. In 2019, Red Hat was acquired by IBM for about $34 billion.
Change in Company Type
IBM's $34 billion acquisition of Red Hat brings Red Hat's open source Linux-based software (the preferred computer language for cloud applications) to IBM. IBM has fallen behind companies such as Amazon, Google, and Microsoft in the race to provide cloud computing services. The addition of Red Hat is to enable IBM to offer a software-centric approach to hybrid clouds. IBM and Red Hat have partnered to offer software services for about 20 years. As part of IBM, Red Hat is to operate independently and report as part of the Cloud and Cognitive Software segment. The deal closed in mid-2019.
Red Hat makes two types of software. One is for running computing infrastructure and the other is for developing applications and managing cloud environments. Subscription revenue for infrastructure software accounts for about 60% of the company's sales.
Infrastructure products include the flagship Red Hat Enterprise Linux software, which generates the majority of the company's revenue. It is an operating system platform that runs applications on a broad range of hardware and is used in hybrid cloud environments. The Red Hat Satellite system management software eases deployment and management of Red Hat infrastructure across hybrid cloud environments. Red Hat Enterprise Virtualization software allows customers to run multiple operating systems and applications over common hardware.
The company's application-related products generate about a quarter of sales. The segment's products include Red Hat JBoss Middleware, which are offerings for running and managing applications across hybrid cloud environments; Red Hat Mobile Application Platform, software development tools for enterprise mobile applications; and Red Hat Storage, software for managing large, unstructured or semi-structured data using commodity hardware in hybrid cloud environments.
Red Hat also provides consulting and training services, which, combined, account for about 15% of revenue.
Red Hat is based in Raleigh, North Carolina and has significant facilities in the US as well as about 100 offices in some 40 countries.
The company depends on the US for 55% of its revenue with the rest of the Americas region accounting for about 10%. Other international regions supply the rest: the EMEA region accounts for about a quarter of revenue and the Asia/Pacific region provides about 15%.
Sales and Marketing
Red Hat has an extensive sales network. It sells directly to users through its sales staff and website. Other sales channels include certified cloud and service providers, distributors, embedded technology partners, independent software vendors, systems integrators, and value-added resellers. Makers of computer hardware also sell systems with Red Hat software installed.
Red Hat's customers are in a variety of industries, including financial services, government, healthcare, retail, telecommunications, and transportation. The US government and its agencies account for about a 10th of revenue.
Red Hat's financial performance kept climbing in 2019 (ended February) with increases in revenue, profit, and operating cash flow on stronger sales of its open-source cloud infrastructure software.
In 2019, revenue advanced about 15% to $3.3 billion, about $400 million more than 2018, on the strength of a 14% increase in subscription revenue. Infrastructure-related offerings rose about 9%, pushed by overseas sales and the growth of the Linux platform. Application Development-related and other emerging technology offerings jumped 30% due to Red Hat Middleware and its emerging technology products such as Ansible, OpenShift, and OpenStack. Training and services revenue rose about 20%.
Red Hat pocketed $434 million in net income in 2019, about $172 million than in 2018, boosted by higher sales and a lower tax bill.
Red Hat's cash holdings were $1.9 billion at the end of 2019 compared to $1.1 billion at the end of the previous year. In 2019, operations generated about $1 billion in cash, investing activities provided $110 million, and investing activities used about $920 million.
Although Red Hat originally offered support for consumer-oriented Linux products, the company shifted its focus entirely to the more lucrative business of supporting and servicing Linux technologies in enterprise environments. Companies have embraced open-source platforms for back-end tasks such as managing data center operations including virtualization, server and data management, and enterprise application integration.
The trend of companies moving large amounts of data to hybrid cloud systems matches up with Red Hat's strengths in deploying management software and application development. Companies also have trended toward open source software and away from proprietary technologies.
Red Hat is betting that container technology will be a growth engine for the company. Container-based applications provide more flexibility in that they can work in multi-cloud and hybrid cloud environments. Red Hat's recent acquisitions, including that of CoreOS in 2108, strengthened the its container offerings.
The proposed $34 billion acquisition of Red Hat by IBM could provide Red Hat with additional resources to develop technologies and products for hybrid cloud applications. The addition of Red Hat would enable IBM to offer a software-centric approach to hybrid clouds. IBM and Red Hat have partnered to offer software services for about 20 years. The deal was expected to close in late 2019.
Mergers and Acquisitions
In 2018 Red Hat acquired NooBaa, a startup developing software for managing data storage services across hybrid and multicloud environments. NooBaa can enable data to be written to one place, or move it as needed for viewing the data across multiple environments. The technology augments Red Hat's hybrid cloud offerings.
Also in 2018 Red Hat acquired CoreOS, developer of Kubernetes and container-native technologies, for $250 million. The deal plays into Red Hat's container strategy to help customers build any application and deploy it in any environment.
Red Hat acquired Permabit Technology Corp., an open source provider of software for data deduplication, compression, and thin provisioning, in 2017. Adding Permabit technology to the Red Hat Enterprise Linux platform is to permit more efficient storage options.
In 2017 Red Hat also acquired Codenvy, a developer of tools for creating cloud software. The deal continued Red Hat's effort to expand its portfolio of tools for developers of cloud software. Red Hat is to make Codenvy a part of its OpenShift.io development environment for building hybrid cloud services.
If IBM's acquisition of Red Hat goes through, it would complete the circle for the open source software company.
Finnish graduate student Linus Torvalds created the Linux operating system in 1991 as a hobby. When Torvalds released its programming code free over the internet for anyone to revise, Linux quickly attracted a core base of devoted programmers -- including Marc Ewing, a programmer for IBM by day.
Ewing developed improvements to Linux in his spare bedroom. Soon he began selling the improved operating system as Red Hat -- named after a red and white Cornell lacrosse cap Ewing's grandfather had given him.
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Employer Type: Publicly Owned
Vice President, Enterprise Analytics and Data: Heidi Lanford
Chairman: Henry H. Shelton
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