Novell Linux push fails to cover NetWare losses
Date: Monday, December 11 2006 @ 13:11:01 EST
Topic: Novell News
Novell Inc's shares sank to a new 52-week low last week after the
company announced fourth-quarter revenue down 15% to $244.9m and
lowered its targets for 2007, highlighting the fact that the company's
move into the Linux distribution business has failed to cover the
downturn in its NetWare business.
The Waltham, Massachusetts-based software vendor's fourth
quarter revenue was about $6m shy of analysts' estimates, which was
never likely to keep Wall Street happy. Announcing that the company
expected revenue to be "flat or near flat" at $945m to $975m in 2007
was the double-whammy that pushed the company's share price down to
$5.70, its lowest price since March 2005.
One of the significant issues that Novell faces is the fact that its
Linux revenue is not accelerating fast enough to cover the decline in
its traditional NetWare and collaboration software markets. The fourth
quarter might have seen Linux platform product revenue rise 32.4% to
$13.0m, but at the same time NetWare revenue shrank 69.9% to $8.4m.
To
put this into perspective, Novell's NetWare revenue fell $19.4m
year-on-year in the fourth quarter, while resource management fell
$16.2m and collaboration software fell $3.7m. In comparison Linux and
Open Enterprise Server revenue grew just $4.3m in total.
The
company's other main area of focus, identity management, brought in
revenue of $23.8m in the quarter, up just $793,000, or 3.5%, to be
worth 9.7% of overall revenue.
At least the Linux revenue
figures are heading in the right direction, although it takes an
understanding of Novell's revenue categorization over the years. For
instance, the company reported $13m in Linux Platform Products revenue
in the fourth quarter, up 32%, despite reporting $15m revenue from
Linux products and services in Q405.
The difference, according
to Novell, is that the Q405 figure included SUSE Linux Enterprise
Server, SUSE Linux Professional, Novell Linux Desktop, ZENworks Linux
Management (Red Carpet), and technical support services related to
Linux, while the more recent figure covered just SUSE Linux Enterprise
Server and SUSE Linux Enterprise Desktop.
The company has
changed the Linux revenue category it highlights during its financial
announcements several times since its acquisition of SUSE Linux, but
having settled on Linux platform products, it is possible to see that
while Novell's enterprise Linux revenue is heading in the right
direction, progress is slow.
Starting in the first quarter of
2005, Linux platform revenue was $8.5m, $8.6m, $8.9m and $9.3m in the
four quarters of 2005, followed by $10.4m, $10.3m, $11.6m, and $13.0m
in the four quarters of 2006. In comparison, Red Hat Inc had
subscription revenue of $84.9m in its most recent quarter.
On
top of that you have the revenue from Open Enterprise Server, which
contains either Linux or NetWare with network services. Earlier this
year the company said two thirds of OES customers were deploying Linux.
The
product was responsible for revenue of $31m, $47m, $43m, $38m, $45m,
and $48m since it hit the company's revenue figures in the third
quarter of 2005, but with year-on-year quarterly growth of just 2.4% it
is not exactly setting the world alight.
It remains to be seen,
of course, what impact the company's recent interoperability and patent
peace deal will have on its Linux revenue figures. Chief executive Ron
Hovsepian told investors this week he knew of four big deals he was
personally involved in that were lost due to buyer fears of Microsoft.
That
fear will now be most felt by non-Novell Linux customers after
Microsoft declared them safe from patent infringement claims. There is
a significant level of animosity from sections of the open source
movement towards Novell regarding its pact with Microsoft, however, and
it remains to be seen whether that could have a balancing effect on any
gains.
Even Microsoft's agreement to distribute $240m worth of
SUSE Linux Enterprise support vouchers to joint customers over the next
five years is only expected to bring in $4m to $7m in the whole of
2007. With that deal failing to deliver immediate gains, Novell needs
to increase its Linux revenue fast if it is to balance its losses
elsewhere.
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