Due to strong growth potential, software companies in this industry are focusing on providing cloud offerings. The global cloud computing market is expected to reach $121.1 billion in 2015, growing at a rate of 26.2% from 2010 to 2015. Inverstor may eye on two companies are enhancing their cloud based offerings with new product launches and acquisitions. Let's discuss them in detail.
Red Hat (NYSE:RHT) reported at strong start of fiscal 2014 with first quarter revenue of $424 million, representing 17% year-over-year growth. Strong traction in its subscription business and cloud enabled services propelled the revenue growth. Subscription revenues (87.8% of revenues) increased 17.0% year over year to $372.0 million. Subscription revenues for infrastructure related offerings (RHEL) increased 14.0% from the year-ago quarter to $319.0 million. The company witnessed stronh Cross-selling with top verticals like telecom, cloud and healthcare.
During the quarter, the company expanded its relationship with SAP. The company also previewed its recently launched flagship product RHEL 7. The company expects a total addressable market of middleware to reach around $17 billion by 2016. The middleware business accounts for more than 15% of total revenue. With increasing use of middleware components, it is expected that total revenue will reach $1.5 billion in fiscal year 2014 compared $1.3 billion in fiscal year 2013.
OpenStack technology presents another significant opportunity to Red Hat with increased adoption of cloud computing. Openstack is an open source infrastructure as a service, or IaaS, initiative to support interoperability between cloud services allowing businesses to build cloud services in their own data center.
Last year, it launched an enterprise Linux based OpenStack platform. It is an extension of the RHEL family and provides a way to build both private and public clouds. This increases the usability of OpenStack by making it supportable across multiple systems. Under Red Hat cloud infrastructure, it announced Red Hat Cloudforms 2, a single subscription that provides an open private cloud solution. The company’s OpenStack technology is in its early stage and is expected to generate around $480 million in annual revenue in fiscal year 2015 and beyond.
In the first quarter, the Company acquired Inktank and to add on to its acquisition list it also announced the acquisition of eNovance, a cloud-based infrastructure provider. eNovance has a strong clientele of approximately 150 customers that include Alcatel-Lucent, Cisco, Cloudwatt and Ericsson.
Oracle (NYSE:ORCL) to stay focused on the phenomenal cloud market Oracle signed a nine-year alliance agreement with Salesforce.com, one of the fast-growing cloud computing companies with SaaS Application. This agreement was designed to boost Oracle's cloud-computing efforts and hardware business with a deeper penetration. Oracle now claims to be the seconds largest SaaS company with saleforce.com being the leader.
With this agreement, Salesforce will assist Oracle by supplying hardware including Exadata servers and Java middleware applications. Salesforce will also support Oracle’s Fusion Human Capital Management and Financial Cloud in its internal operations and further integration is likely due to customer demands for more integrated products. Moreover, Salesforce will refer customers to Oracle for its cloud applications, giving Oracle an advantage over its competitors.
The cloud subscription business of the Company is now approaching a run rate of $2 billion a year. The synergies in the past has help oracle to record growth. In the fiscal 2014 Q4 total revenues were up 3% to $11.3 billion. Software and Cloud revenues were up 4% to $8.9 billion. GAAP Cloud software-as-a-service (SaaS) and platform-as-a-service (PaaS) revenues were up 25% to $322 million, while non-GAAP SaaS and PaaS revenues were up 23% to $327 million. In addition, Cloud infrastructure-as-a-service (IaaS) revenues were up 13% to $128 million.
Oracle also signed a similar deal with Microsoft to allow Java developers to develop applications using Oracle tools on Microsoft’s servers such as Hyper-V and Microsoft Azure. Microsoft’s cloud services will help Oracle customers move their workloads to Azure. Both companies will now run Java as well as Oracle database tools and Linux on Microsoft Windows servers. In this agreement, Microsoft will provide and support Java, and Oracle will do the same for Linux. This deal is one the largest deals in the software world, benefiting customers and helping both companies stabilize their position in the fast-growing cloud business.
Analyst and expects anticipate that the Company may generate a total revenue of 40.20 billion in the 2015 fiscal year, and will increased to 42.01 billion in 2016..
All these software companies are focusing on cloud service opportunities with initiatives like new launches and acquisition. Red Hat’s middleware growth and long term OpenStack opportunity provides better future prospects. International Business Machine’s growing backlog and acquisition to boost its cloud business will drive revenue. For Oracle, the synergies and the growth on the SaaS application will enable the company to record growth. Thus , I recommend all these stocks a buy.