Apple Ditches VMware: A Positive Sign For Red Hat Stock?

  • Apple will be moving its corporate IT workloads from VMware's ESXi to KVM, the open-source server virtualization platform that Red Hat operates on.
  • Apple is reportedly also evaluating OpenStack, an open-source IaaS cloud platform that Red Hat has built its cloud around.
  • The move by Apple might trigger other large organizations to try out Red Hat's offerings.

Apple (NASDAQ:AAPL) has reportedly declined to renew its enterprise licensing agreement, or ELA, with Vmware (NYSE:VMW) for its ESXi hypervisor and will instead deploy KVM (Kernel-based Virtual Mchine), an open-source server virtualization framework around which Red Hat (NYSE:RHT) has built its business. Apple has for long used VMware’s server virtualization software to run part of its extensive IT infrastructure but is increasingly opting for open source platforms. Apple has in the past talked publicly about using open-source platforms to run core products. In April, the Cupertino giant talked about how the popular Siri digital assistant app is powered by open-source Apache Mesos.

Apple has reportedly also been evaluating OpenStack, an open-source IaaS cloud platform upon which Red Hat has built its own cloud.

Note: You might be also interested in our Apple Stock Analysis video.

Positive for Red Hat

Red Hat is an open source company that has built its business around bundling its KVM-based hypervisor with Linux. The company gives away Linux products for free, then makes money by charging for support services. To sweeten the deal for its enterprise, Red Hat has in the past bundled RHEL (Red Hat Enterprise Linux) with the KVM hypervisor.

Also see: Our Red Hat Stock analysis video evaluating the company based on its fundamentals.

KVM pretty much does what VMware’s proprietary ESXi does, but at a much lower cost. VMware is often accused of overcharging for its licensing agreements, and was recently fined $75.5 million to settle a civil lawsuit for overcharging the federal government for its products. The fact that Apple is ready to ditch ESXi for KVM as its corporate IT backbone is a big endorsement of the open-source platform. Apple reportedly used to pay VMware $20 million for a two-year ESXi license. While $20 million is little more than chump change for Apple, it’s highly likely that what the company detests more is the vendor lock-in that comes with purchasing such a license. Being open-sourced, KVM involves no such vendor lock-in and organizations are free to move their workloads into competing virtual machines at will.

Red Hat has lately been bundling OpenStack IaaS and OpenShift PaaS cloud platforms with its RHEL offerings. OpenStack was in the not-to-distant past dogged by concerns that it was not yet ready for the enterprise. The IaaS platform was too fragmented and difficult to setup and run right out of the box. But OpenStack has matured a great deal over the past few years, so much so that companies like PayPal and Best Buy now run their core ecommerce websites on the OpenStack platform. Again the fact that Apple is evaluating the OpenStack platform speaks volumes about how far the platform has come.

OpenStack offers a much better value proposition for large companies like Apple with massive workloads. Although VMware provides an open-source cloud computing server virtualization platform that is supported via ESXi by many vendors, a cloud reseller would have to purchase a separate license for each core which makes it expensive to deploy. OpenStack does not have such limitations.

Is VMware toast?

At first glance, this would appear to be the case. If Red Hat’s KVM and OpenStack platforms offer such a superior value proposition for organizations, why do organizations continue to pay for VMware’s costly ELAs?

The truth of the matter, however, is that VMware will continue to be relevant to many companies that lack the technical expertise to deploy KVM, and this includes a lot of middle-level and smaller organizations. KVM and OpenStack are considerably more difficult to deploy than ESXi, meaning it might make sense for smaller organizations with limited technical ability to deploy ESXi.

Red Hat, however, has already moved to make KVM easier to deploy. The company recently launched Linux Container Software, a lightweight version of KVM, and somewhat reminiscent of Dockers, the open source platform that has been giving VMware nightmares. Red Hat is on record saying that Linux Container Software has been very enthusiastically received by its customers.


The fact that Apple is moving its IT workloads to KVM and exploring the OpenStack IaaS cloud platform is a great endorsement for Red Hat’s core products. While not all companies are well-suited to go Apple’s route, the move could encourage other large organizations to explore the platforms and give Red Hat a great opportunity to grow.

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