ORCL - Get Report) and Microsoft ( MSFT - Get Report) put together is tough to reconcile. But it's been this way for a while. Although several analysts didn't give the company much of a chance ahead of Red Hat's fiscal first-quarter earnings report, management continues to do an excellent job stating their valuation case pretty strongly. Interestingly, given the lackluster results posted by Oracle and IBM ( IBM - Get Report), it's starting to look as there's a divergence within a sector that has often traded in tandem. While I'm inclined to believe that tough IT spending environment has had an impact on both Oracle and IBM, I can no longer ignore the possibility that Red Hat is beginning to steal share in areas like middleware. Valuation concerns aside, this is beginning to look interesting. Revenue growth has never been an issue at Red Hat; nor was it an issue this quarter, with sales climbing 15.4% year over year. The company also did well growing subscription revenue 16% year over year and 4% sequentially. Adjusted net income rose to 32 cents from 30 cents per share -- enough to beat estimates by 1 penny. CTXS - Get Report) and Salesforce.com ( CRM - Get Report).
I can't knock the bear who insists on raising this point. Management needs to sort this part out. Margins can't continue to contract and then expect concerns about valuation to go away. Investors will want to know what they're paying for. But given Red Hat's solid beat on the top and bottom lines, I'm now willing to look slightly the other way. It was certainly encouraging that Red Hat's CEO, Jim Whitehurst, didn't appear too concerned about the companies competitive situation. In an interview with TheStreet's Chris Ciaccia, Whitehurst cited (among other things) Red Hat's plans to enter new categories including Open Shift and Open Stack. He also noted: "The power of Open Stack is that it has massive participation. It has everyone from Microsoft to VMware (VMW - Get Report), to Hewlett-Packard (HPQ - Get Report) to us participating in it. An industry is coalescing around an open source standard. There's a lot of momentum and a lot of interest in Open Stack, but it's still early days." Follow @saintssense This article was written by an independent contributor, separate from TheStreet's regular news coverage.