Editor’s note: Red Hat (NYSE: RHT) is scheduled to release its latest quarterly earnings Monday after the markets close. Elizabeth Hedstrom Henlin, an analyst at Technology Business Research, attended Red Hat’s annual analysts’ day in late June and last week filed this report.

HAMPTION, N.H. – Red Hat’s (NYSE: RHT) distinct, customer-focused message, highlighted at Red Hat’s Analyst Day 2012, is designed to increase wallet share through the use of innovative technologies.

Having crossed the billion-dollar threshold in FY12, Red Hat is capitalizing on increased visibility within the enterprise market by making aggressive moves to iterate and extend its core strengths in development and software architecture, including accelerated hiring plans of 250 personnel per quarter.

TBR believes this strategic evolution will enable Red Hat to take share in new addressable markets. Red Hat’s messaging focus on an “open hybrid cloud” demonstrates growth — moving from a position as a trusted on-premises advisor to also serve as a cloud enablement partner and letting customers benefit from standardized development and application environments that cover multiple delivery methods.

Customers should take note of Red Hat’s targeted acquisition strategy; it is technology driven and aimed at maximizing feature and functionality advances within the Red Hat portfolio. TBR sees Red Hat, with cloud, virtualization and management products at its disposal, as an attractive partner for cloud-minded companies. Red Hat may see competition from vendors such as Microsoft and Oracle when elevating its discussion from IT to the C-Suite.

Competitors can entrench install bases by ensuring IT managers and corporate executives alike see the value in existing relationships.

Impact and Opportunities

Red Hat will leverage a technology-led approach and user-centric messaging in CY13 — keeping employees and customers engaged for the long term

Red Hat’s software-led and open-source approach differentiates it from software stack competitors and makes the company a versatile partner for software, networking, hardware and solutions vendors. TBR believes that Red Hat’s corporate performance, by attaching its fortunes so closely to the open-source movement, is seeing additional momentum from open-source efforts underway across the software landscape, particularly those of the Apache Foundation and of OpenStack.

Strategy for Its “Next Billion Dollars”

Red Hat’s Analyst Day took place in Boston on June 27, 2012. As a part of Red Hat’s annual summit and JBOSS  World, analysts had access to senior executives and product technologists from across the company. In addressing an audience of financial and industry analysts, CEO Jim Whitehurst called out the nee, as viewed by Red Hat, to move the idea of open source from “could be” to “should be.” This theme resonated throughout conversations TBR held with Red Hat personnel and executives during the event.

Conversations of particular note included discussions with the legacy Gluster team. Executives from the Red Hat Storage Server business unit called out the technology’s ability to look at storage in a manner resembling that with which server virtualization reinvented business models. This product exemplifies Red Hat’s approach to new addressable markets: technology focused, designed for maximum user engagement and targeted in nature. TBR believes this strategy is positioning Red Hat to increase wallet share through the remainder of CY12, with accelerating momentum in CY13.

An expanding product portfolio — enabling cloud development and virtualization management — stands to deliver net-new customer access for Red Hat at a time when heterogeneous environments, particularly in virtualization, are seeing increased momentum. Red Hat executives highlighted share gains following VMware’s vSphere pricing changes of CY11 and noted continued increases since then.

Challenges, Acquisitions

However, Red Hat’s challenge remains balancing the depth of its commitment to existing portfolio products with new market initiatives. During Analyst Day, Red Hat executives repeatedly underscored the importance of Linux to corporate growth (including ongoing Unix
migrations and Linux adoption outpacing Windows).

TBR sees Red Hat’s acquisition strategy as critical to the company’s next steps. Red Hat’s targeted acquisitions of Gluster and FuseSource delivered product-centered businesses that Red Hat has and is integrating into core operations. Furthermore, Red Hat’s ability to retain Gluster executives (with whom TBR spoke during the event) shows the company’s ability to acquire not only for portfolio but also for cultural fit within the changing Red Hat organization. Continuing a strategy of prioritizing acquisitions for their technologies will extend Red Hat’s core value proposition — serving as a technology-trusted advisor to the IT manager and the executive — while allowing Red Hat to scale its portfolio without aggregating costs atop current hiring advances.

TBR sees Red Hat’s noted growth drivers — including re-architecting the data center, migrating Unix to Linux, Linux outpacing Windows growth, middleware sales, share of wallet increases (cross-sell/upsell as well as larger deals), increased vertical penetration, migrating free users to paid subscriptions, a focus on renewals and addressable market expansion (verticals, virtualization, cloud) — as being in line with enterprise competitors, including VMware, Microsoft and Oracle. The company is aligned with market trends and has significant mindshare with application developers — a user base many of those competitors are currently chasing.

We believe Red Hat’s  opportunity in the next 12 to 18 months hinges closely on the company’s ability to scale its global reach without
significantly eroding margins and profitability.

(C) Technology Business Research