Novell Sees Linux Business Slow, Despite Coupons

Novell officials cited declining fortunes across its business yesterday "due to the slowing economy" as it summarized its first-quarter results of 2009.

CFO Dana Russell said net revenue for the quarter was $215 million, compared with net revenue of $231 million for the first quarter of 2008. Net income was $11 million, or 3 cents per share, compared with net income of $17 million, or 5 cents per share, for the same period the year before, Russell said in Novell's quarterly earnings report teleconference.

In its open platform solutions business unit, which includes SUSE Linux Enterprise System, Novell reported $37 million in product revenue, with $35 million attributed to Linux products, up 24% from the same period a year ago. Identity and security management products produced $28 million in revenue, down 8% compared with the same period a year ago. Workgroup product revenue fell 9% to $81 million. Systems and resource management revenue was up 9% to $40 million.

As a more severe indicator of its immediate prospects, Russell said Linux has been a source of growth for Novell but Linux invoicing, or the booking of sales prior to actual revenue collection, was $23 million for the quarter, down 42% from the year before.

The results for the quarter "were below our expectations due to the slowing economy," Russell said.

Russell said Novell's Linux business "depends on large deals" to grow its core open source business. In the quarter ended Jan. 31, "we did not sign any large deals," he said during the teleconference. Novell has been offering SUSE Linux Enterprise System with Microsoft purchased certificates for free support. Novell has collected certificates valued at $199 million; that leaves $41 million in certificates available for future Linux support subsidies.

In recent quarters, Russell added, "many large deals have been historically fulfilled by Microsoft certificates."

The certificates or coupons came about as a result of a November 2006 agreement between Microsoft and Novell in which they agreed to not hold each other liable for patent infringements. They also said they would work on Linux/Windows interoperability together and Microsoft said it would subsidize SUSE Linux sales to Windows customers with $240 million in support coupons.

According to a joint Microsoft/Novell FAQ document, the coupons were to be used by Microsoft to give joint Microsoft/Novell customers one year of technical support for SUSE Linux Enterprise Server. They would be used for customers "interested in deploying virtualized Windows on SUSE Linux Enterprise Server, or virtualized SUSE Linux Enterprise Server on Windows."

Although reporting windows don't precisely overlap, other Linux vendors haven't found the slowing economy to impact their revenue collection so severely. Red Hat in a third-quarter report Dec. 22 said its revenue of $165.3 million was up 22% over the year before.

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