Bloomberg News

Red Hat Assists Israeli Startups to Increase Software Revenue

November 10, 2011

Nov. 9 (Bloomberg) -- Red Hat Inc. began a program for Israeli startups designed to boost use of its open-source software and increase sales as more companies migrate to cloud computing.

“Our goal is for next-generation Internet service providers to build on our platform,” Chief Executive Officer Jim Whitehurst told reporters in Tel Aviv. “As they grow, their customers will buy our software,” he said.

Seven Israeli early-stage technology companies with revenue of less than $1.5 million each have been chosen to get free access to Red Hat enterprise software. The program will be expanded in Israel before being extended to other countries, Whitehurst said. The company will offer Red Hat software to the firms at a declining discount as their revenue grows.

Red Hat, based in Raleigh, North Carolina, intends to triple sales to $3 billion in five years, boosted by the rising popularity of cloud computing, Whitehurst said in June. Companies such as Amazon.com Inc. are expanding cloud-computing sales in the U.S. as the government shifts $20 billion of the $80 billion in yearly information-technology spending to the services, which let users share resources such as data storage and software.

Red Hat, which acquired an Israeli company three years ago, doesn’t necessarily plan to buy startups that enter the program, Whitehurst said in an interview. Even so, Red Hat will “be significantly more acquisitive than we have been,” he said.

The software developer, the largest seller of Linux software, is looking at a number of companies and is searching for “really interesting technology,” the CEO said, declining to elaborate.

Hard-Drive Shortage

Red Hat agreed to acquire Gluster Inc. last month for about $136 million to extend its cloud computing offering into storage, a move that will partly insulate the company from an expected shortage in hard drives following the recent flooding in Thailand, the Whitehurst said.

The CEO said he doesn’t expect the European debt crisis and forecasts of slowing technology spending to affect the company’s prediction for double-digit growth.

“Open-source does very well in a down market,” he said. “It gets companies out of their comfort zone and they have to find ways to take costs out.” The company raised its full-year sales forecast in September to as much as $1.13 billion from as much as $1.09 billion.

Israel, whose population of 7.7 million is similar to Switzerland’s, has about 60 companies listed on the Nasdaq, the most of any country outside North America after China. Matrix IT Ltd., Red Hat’s Israeli partner, will shepherd the startup program.

--Editors: David Risser, Robert Valpuesta

To contact the reporter on this story: Gwen Ackerman in Jerusalem at gackerman@bloomberg.net

To contact the editor responsible for this story: Kenneth Wong at kwong11@bloomberg.net


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