Red Hat Q1 Earnings Preview: 5 Things To Watch

| About: Red Hat, (RHT)
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Simplified cloud strategy, built on OpenStack, is a must.

Potential virtualization gains vs. VMware, Microsoft Hyper-V.

Cloud Providers : How many are official partners?

Storage Revenues: Are they taking hold?

How much growth can RHEL 7 generate?

When Red Hat Inc. (NYSE:RHT) announces Q1 2015 results on June 18, I'll be listening closely for five signs of progress at the company. Although the open source company remains in growth mode, I'd like to see Red Hat refine and simplify its cloud strategy -- which could become unwieldy in its current form.

Among the key points I believe CEO Jim Whitehurst should address:

1. Simplified Cloud Strategy: Red Hat often celebrates its OpenStack wins -- which could fuel revenue growth for years to come. But the company has numerous cloud priorities -- including OpenShift (platform as a service), Red Hat Cloud Infrastructure (infrastrucure as a service) and CloudForms (hybrid cloud management). Don't forget, Red Hat Enterprise Linux (RHEL) and Virtualization (RHEV) still provide the foundation for the company's overall cloud strategy.

On the one hand, product diversity can be a blessing. But on the other, I wonder if Red Hat is stretching itself too thin with so many cloud offerings.

2. Virtualization: Back in 2010, CEO Jim Whitehurst predicted Red Hat Enterprise Virtualization would leapfrog VMware Inc. (NYSE:VMW) the same way Linux leapfrogged Unix. But so far, that prediction hasn't been fully realized. VMware remains in growth mode, and Microsoft Corp.'s (NASDAQ:MSFT) Hyper-V option also has gained momentum.

Yes, Red Hat certainly has virtualization customer wins. But how much revenue does that actually represent? And what new steps can Red Hat take -- if any -- to potentially leapfrog VMware's popularity?

3. Cloud Provider Partnerships: Google Inc. (NASDAQ:GOOG) joined Red Hat's Certified Cloud Provider Program November 2013. And by early 2014, Red Hat announced a range of offerings for Google Cloud Platform. But Red Hat has to make at least two more strategic moves here:

  • First, Red Hat and Microsoft must partner to ensure Red Hat's software runs in Microsoft's Azure cloud.
  • Second, Red Hat must more aggressively promote tier 2 cloud partners -- the alternatives to Microsoft, Google and Amazon Inc. (NASDAQ:AMZN) Web Services.

4. Storage Revenues Taking Hold?: The hype about software-defined networks (SDN) and software-defined storage is overwhelming. Instead of joining the hype cycle, I'd like Red Hat to explain -- in dollars and cents -- how Red Hat Storage is performing. Plus, tell me more about the April 2014 buyout of Inktank -- and the potential revenue upside that offers.

5. Bread and Butter Linux Revenues: Of course, Red Hat built its business atop Linux. And the latest release, version 7, sounds promising. But how much more growth can RHEL drive now that we're more than 20 years into the Linux revolution? I'm hoping Whitehurst answers that question directly during the earnings call.

Overall, I remain upbeat on Red Hat. I've been a shareholder since at least 2008 or so. And I will likely remain long on Red Hat regardless of this week's earnings results.

Simply put, I think Red Hat's software provides many of the building blocks required for cloud computing, software-defined storage, virtualization and more. As long as Red Hat continues to diversify beyond its core Linux revenue stream -- without taking on too many development projects -- I'll remain a believer in the company.

Disclosure: The author is long RHT, RAX. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.