Asian governments driving demand for open source

Asian governments are pivotal to Red Hat's goal of earning 60 percent of its revenue from outside the United States by the end of 2009, said Matthew Szulik, the company's chairman, CEO and president, in a conference call on Thursday.

Governments in the region are beginning to see open source as a boost for their economies and a way to increase technological innovation in the region, Szulik said. The governments of South Korea, Japan, Australia, and China have been "positive spokespeople" for the growing adoption of Linux and open source software in the region, he added.

Most of the business for Red Hat in the region, as in the rest of the world, is in the transition from Unix and legacy systems to the Linux operating system. Customers are typically in the financial services, telecommunications, technology and the government sector, Szulik said.

At the end of August, Red Hat's revenue for the first six months of its fiscal year was US$246 million [m], up 34 percent from the previous year. About 85 percent of its revenue came from software subscriptions with the balance coming from services like consulting and training. The company does not break out revenue by regions.

Red Hat also had $33 million in operating income for the six months period, up 48 percent from the same period in the previous year. The company has over $1.3 billion in cash on its balance sheet, said Charlie Peters, Red Hat's chief financial officer.

Apart from continuing opportunities in the market for replacement of the Unix operating system with Linux, Red Hat is also seeing revenue coming in from middleware, Peters said. The company acquired JBoss, a vendor of open-source middleware, in June 2006.

Red Hat plans to roll out new technologies in the coming months that will help customers build global virtualized computing infrastructure, Szulik said. The company introduced server, storage, and desktop virtualization as part of Red Hat Enterprise Linux 5 earlier this year.

An increase in availability of third-party applications around Linux helped boost demand, as Linux has been expanding its share of servers based on Intel's x86 architecture and IBM's mainframe and server environments, Szulik said. In addition, there has been an increase of technically trained staff with Linux and open-source skills, he added.

The IDG News Service is a Network World affiliate.