Wall Street wasn’t pleased with Red Hat’s second-quarter revenue miss on Wednesday, but the software company’s outlook is much brighter than this quarter made it seem, Red Hat President and CEO Jim Whitehurst told CNBC on Friday.
An open-source software provider that helps enterprises get onto the cloud, Red Hat gets much of its business from its Enterprise Linux operating system, which helps run companies’ applications via private and public clouds.
But the Enterprise Linux division’s modest second-quarter growth of 8 percent didn’t mean business was slowing permanently, Whitehurst told Cramer in an exclusive interview.
“Two and a half years ago, we started down a path of trying to get our customers in three-year agreements. By getting them in three-year agreements on Linux, it gives us time to go then sell them new products,” he said.
“The problem with that is those three-year agreements are typically fixed, and so they don’t go up in value every year, so the bulk of our Linux business and these three-year deals isn’t growing at all,” Whitehurst continued.
As the three-year deals come closer to their renewal dates, however, the Linux business should turn up, the CEO said.