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What Drove Red Hat's Fiscal 2Q18 Earnings?

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Part 9
What Drove Red Hat's Fiscal 2Q18 Earnings? PART 9 OF 18

What Is Hybrid Cloud’s Role in Red Hat’s Growth?

Hybrid cloud’s influence on Red Hat

Earlier in the series, we discussed the extended partnership of Red Hat (RHT) with Microsoft (MSFT). Highlighting the importance of hybrid cloud in its growth, Red Hat, in its 2Q18 earnings release, stated, “Our strong second quarter results are further evidence that IT organizations are increasingly turning to Red Hat as a strategic technology partner as they modernize their IT infrastructure for the hybrid cloud and digital transformation.”

Red Hat’s dominant presence in the Linux space will further enable it to cross-sell its OpenStack to new and existing clients as hybrid cloud adoption increases.

What Is Hybrid Cloud&#8217;s Role in Red Hat&#8217;s Growth?

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Organizations’ preference for the hybrid cloud is growing, as it gives them control over their data even when using cloud services. Hybrid cloud technology typically offers more control, more cost-structure efficiency, reduced risk, and better performance.

The RightScale 2017 survey further highlighted the increased adoption of the hybrid cloud, showing that “enterprise multi-cloud and hybrid cloud adoption continues to grow, and even with that growth, challenges are decreasing.”

Amazon (AMZN) has also seen the increased adoption of hybrid cloud technology. In 2016, Amazon announced a partnership with VMware (VMW) to gain a foothold in the hybrid cloud space. Please read, A Look at VMware’s Hybrid Cloud Strategy to know more.

Analysts’ viewpoint

The above presentation by Gartner shows an overall positive rating for Red Hat. Red Hat with consistent growth across its product portfolio has consolidated its leadership “market positions for Linux, middleware products and cloud management, with continued investment in more nascent market categories like containers, hybrid cloud platform as a service (PaaS) and storage.”

Zane Chrane, an analyst at Bernstein, believes that Red Hat has been successful in its initial stint in its hybrid cloud strategy. He said, “We believe we are very likely only in the first inning of Hybrid Cloud and container adoption in what appears to be an accelerating secular trend for both.”

Kask Rangan, an analyst with Bank of America, outlined how Red Hat’s success is dependent on the increased adoption of hybrid cloud and if it does not happen, other emerging technologies might halt the company’s roaring success. Rangan said, “If hybrid cloud wins, RHEL’s strategic position/growth opportunity would be intact, but if new apps are written/scaled natively on public clouds, then the picture could change, making RHT push harder with emerging technologies to offset potentially slowing RHEL with adverse margin trade-offs.”

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