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Red Hat Gets Boost From Tighter IT Budgets

Linux distributor Red Hat is seeing increased demand for its products even as the recession forces many companies to slash their IT budgets, said Red Hat CEO James Whitehurst.

“We have frankly performed really well through the downturn," Whitehurst told CNBC.com. "We’ve continued to accelerate our revenue growth. We’ve expanded our operating margin. Things are really good around open source."

AP

In fact, Whitehurst said he expects the downturn to help illustrate the strength of its business model. Red Hat develops software based on open source technology, which allows users to redistribute it without paying a fee. Users can even access the source code, make changes and sell the results. The company makes its revenue through subscription fees.

The subscription model, which flies in the face of the traditional license-based software companies like Microsoft , has been gaining traction and is attracting a lot of attention in the wake of Oracle's proposed acquisition of Sun Microsystems . Sun had made strides in the open source market.

Whitehurst is not ruling out making his own acquisitions. He told CNBC.com that Red Hat is keeping a cash cushion to be able to grab opportunities if and when they arise.

“Valuations have come down and there are some start ups having trouble getting funding, so we want to keep enough cash around to be opportunistic,” he said.

Red Hat shares have gotten a boost in the wake of the Oracle-Sun Micro deal, but the stock has been hurt by the slump in the broader market.

“We’re all being hurt, but we are relatively benefiting, certainly versus our competitors,” he said.

Red Hat is used to tough economic times as it got its initial boost during the dotcom bust of the early 1990s, Whitehurst said.

“We really took off because people were desperate to save money and open source creates value,” he said. “We’re seeing a second wave of that now, where CIOs are having their IT budgets cut by 10, 15, 20 percent.”

The company is also making strides in building up its creditability, according to Whitehurst, and counts the New York Stock Exchange and the Russian military among its clients.

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