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Analysis: Red Hat rides the open source wave(BNamericas.com Via Thomson Dialog NewsEdge) The use of open source software is increasing in Latin America and US Linux operating systems integrator Red Hat (Nasdaq: RHAT) has reacted by opening offices in three countries in less than a year. The latest, in Mexico City, will capitalize on companies without extensive IT budgets to afford private software, Red Hat's Mexican sales director Juan Manuel Ruiz told BNamericas. "The emerging economies have less buying power and there's a greater benefit in offering software at lower costs," Ruiz explained. "Plus the open source model offers companies and governments an alternative that is secure, stable and flexible." In Latin America, 60% of companies are evaluating whether to implement or expand Linux systems in servers, Mexican paper El Universal reported, citing information from US tech consultancy IDC. At the same time, 40% of Latin American companies are interested in implementing Linux open source systems in workstations. Open source software can cost a company up to 80% less than traditional software, according to Ruiz. In 2006, Linux operating systems in Mexico grew by 7.6%, second only to Brazil. That's good news for Ruiz who says open source is in his "DNA" or his "reason for living," as well as for Red Hat, a "company 100% devoted to open source software." "Mexico is the second largest economy in Latin America and is adopting open source software very quickly," Ruiz added. Still, Brazil represents more than 50% of Red Hat's business in the region. "In 2007, we expect Mexico to be our second largest market." While the company plans to grow 40-50% worldwide in 2007, Ruiz estimates even more robust growth for the Mexican branch. Red Hat posted US$14.6mn in net profits for the third quarter of fiscal year 2007, ended November 30, 2006, down 37% compared to US$23.2mn in the year-ago period, according to company statements. Red Hat makes money by providing subscription services to companies using open source and its version of the Linux operating system is the most popular open source software in the US, a direct competitor to Microsoft (NYSE: MSFT). The company offers technical support and software updates on a subscription basis and according to Ruiz the subscription renewal rate is 90%. In fiscal 3Q07, Red Hat's global subscription revenue was US$88.9mn, up 48% year-over-year, and training and services revenue fell 22.5% to US$16.9mn. Currently, Red Hat has more than 60 partners throughout the region and seven in Mexico. In 2007, the company wants to raise that number to 20, Ruiz said. A major strategy to ensure that Red Hat is competitive is to educate engineers and company managers about the benefits of open source software. The company regularly offers courses on open source through its education partner Compu Educacin. There are currently 25,000 Linux users at Mexico's largest university, UNAM, in Mexico City, according to Ruiz. "There is still a lot of ignorance in the market about what open source does and what it doesn't do," Ruiz asserted. Last year, Red Hat acquired open source application infrastructure provider JBoss for some US$350mn. JBoss, which specializes in creating SOA applications based on Java EE, has found many clients for the company in Latin America, according to Ruiz. "We have found that people are comfortable with the Java EE solutions," Ruiz said. "There is a lot of interest in Mexico for these types of solutions." Copyright 2006 BNamericas.com |