Linux Isn't Moving The Revenue Needle Much For Novell

Despite a significant momentum boost at last week's LinuxWorld conference, Novell's first fiscal 2005 financial results reflect just how tough a challenge the company faces in selling a combination of open-source and proprietary technology.

Novell on Tuesday reported net income of $395.2 million on revenue of $290.1 million for the quarter, ended Jan. 31, with profits helped greatly by November's $536 million cash settlement from Microsoft to settle a potential antitrust case related to Novell's NetWare operating system. Excluding its gain from the settlement and other one-time gains and losses, Novell earned $10 million for the quarter. For the same quarter in fiscal 2004, Novell reported net income of $10.1 million on revenue of $267.1 million.

Novell's SuSE Linux business accounted for $15 million in revenue for the first fiscal quarter, including $7 million in subscriptions to the SuSE Linux Enterprise Server open-source operating system. The company sold 21,000 SuSE Linux Enterprise Server subscriptions, one-third of which are in North America.

Still, total net revenue from new software licenses was down for the quarter to $50.4 million, from $54.8 million during the first fiscal 2004 quarter. Novell chairman and CEO Jack Messman said during Tuesday's financials call said that he was "not pleased" with his company's Linux performance for the quarter. NetWare revenue was also down from the last quarter of fiscal 2004. Messman couldn't put his finger on one reason for this. "It's not unreasonable to think that customers are waiting to evaluate [Open Enterprise Server] before renewing NetWare maintenance contracts," he said.

Open Enterprise Server, which ships early next month, combines the capabilities of NetWare and SuSE Linux Enterprise Server in a single package for running file, print, management, collaboration, and application services. Although Linux is central to Novell's strategy to gain a foothold in the market for data-center operating systems, the company has a significant NetWare installed base and reseller channel that it doesn't want to lose. Moving forward, Novell will report Open Enterprise Server sales as part of NetWare-related revenue, which will in the short term cause the company to underreport its Linux sales.Novell didn't parlay its windfall from Microsoft into stock buybacks or stockholder dividends. Instead, Messman said, the company will use the money to build up its cash position for potential acquisitions.