Novell says Microsoft deal is good for Linux business

Novell remains mum on GPLv3

Novell Wednesday said its deal with Microsoft is helping drive gains in its Linux business, but danced around questions concerning how that deal may be altered given coming changes in open source licensing.

Novell made the comments during its quarterly earnings call with financial analysts where the company reported nearly a $2.2 million loss in income during its fiscal second quarter.

Novell executives danced around questions concerning its deal with Microsoft as it relates to the new GNU General Public License 3.0, which is expected to be approved as a final draft in June.

In addition, Novell CEO Ron Hovsepian would offer no comment beyond Novell’s already published public statement on Microsoft’s recent claims that Linux infringes on 235 of its patents.

During its earnings call, Novell focused on the news that its revenue was up 2.6% to $239.2 million from $233.1 million during the same quarter a year ago, and that the revenue numbers beat Wall Street’s expectations of $235 million.

Net income, however, showed a loss of $2.192 million compared to a profit of $3.342 million in the same quarter a year ago.

Despite the numbers, Novell executives remained upbeat, highlighting an increase in sales around its Suse Linux software.

Sales of Linux platform products produced $19 million in revenue, an 83% increase year over year. In addition, invoicing for Linux products was $29 million for the quarter, an increase of 114%. Novell said those increases were largely due to the strength of a wide-ranging business and technology partnership signed with Microsoft in November 2006. Microsoft helped account for $18 million of that invoicing, while non-Microsoft-influenced revenue was $11 million.

“I am pleased by our results this quarter,” said Hovsepian. “Our Linux business delivered another strong quarter, workgroup [business unit] performed better than expected and identity [business unit] is recovering although it is still below plan.

Novell said revenue for identity and access management was up 5% over the same quarter a year ago.

But it was Linux and the relationship with Microsoft that Novell focused on, saying it provided a hefty bump to revenue.

“Customer deals associated with the Microsoft relationship accounted for 25% of the Linux platform product revenue,” said Dana Russell, Novell’s CFO.

Hovsepian said in the two fiscal quarters since signing the deal with Microsoft that Novell has invoiced $91 million in sales with $73 million occurring in the first quarter. He said that total was nearly 38% of the $240 million that was called for in the five-year deal with Microsoft.

He also said that Novell has already activated this year 49,000 certificates for maintenance and support, which are handed out by Microsoft. He added, however, that going forward Novell would no longer report that number. Instead, Novell will track progress by reporting the percentage of invoicing over the life of the contract.

As part of the agreement, Microsoft had said it would distribute 70,000 coupons per year for Suse Linux Enterprise Server maintenance and support.

In terms of the patent claims Microsoft has made in recent weeks, Hovsepian said Novell would focus on customers and said statements it made in an open letter to the Linux community would stand as its public comment.

He also was mum on the effect of the forthcoming open-source GNU General Public License (GPL) 3.0, which could change the dynamics of the patent protection clause that is part of the agreement with Microsoft.

Novell said in a 10-K filing it made with the Security and Exchange Commission last week that there was a risk factor in the “grandfather” clause that is currently part of the working draft of the GPL 3.0.

Hovsepian said during a question and answer session that he would not answer questions about what effects the grandfather clause may have on Novell’s contract with Microsoft saying any answer would be “broad speculation.”

Other numbers highlighted by Novell included revenue from its Identity and Access Management business unit of $23 million, a 5% year-over-year increase. The company reported that revenue from Systems and Resource Management unit was $32 million, a 4% drop over the same quarter a year ago, and that revenue from its Workgroup business unit dropped 4% compared to the second quarter of 2006 to $84 million.

Going forward, Novell stated that it expects net revenue for 2007 to be between $925 million and $955 million. Those numbers were adjusted to account for the recent divestment of its Salmon business consulting group.

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