Novell nets takeover talk

Novell released its third-quarter financial results a couple of weeks ago (its fiscal year runs ends Oct. 31), and the picture wasn't very pretty. While revenue fell slightly (from $305 million to $290 million), profits tumbled from $24 million to just $2 million from the previous third-quarter results. Of course, that $24 million last year included $19 million from a settlement of the DR-DOS suit against Microsoft. Still, that means profit from real business fell from $5 million to $2 million - not a very good sign.

A year ago I noted that NetWare was still Novell's best-selling product during the third fiscal quarter. I can't say that again this year, though. Not because NetWare sales are down, though I'm sure they are. It's just that they're no longer reported separately. Instead, there's a consolidated category called "Linux and Platform Services," which includes: Open Enterprise Server; SuSE Linux Enterprise Server; SuSE Linux Professional; NetWare; Small Business Suite; and Cluster Services. All of the revenue gets lumped together.

In a surprising bit of marketing legerdemain, $45 million in revenue from this category was called "Linux-related product revenue." But over two-thirds of that money was attributed to Open Enterprise Server sales, with the balance coming from the other areas of the Linux and Platform Services group.

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Novell released its third-quarter financial results a couple of weeks ago (its fiscal year runs ends Oct. 31), and the picture wasn't very pretty. While revenue fell slightly (from $305 million to $290 million), profits tumbled from $24 million to just $2 million from the previous third-quarter results. Of course, that $24 million last year included $19 million from a settlement of the DR-DOS suit against Microsoft. Still, that means profit from real business fell from $5 million to $2 million - not a very good sign.

A year ago I noted that NetWare was still Novell's best-selling product during the third fiscal quarter. I can't say that again this year, though. Not because NetWare sales are down, though I'm sure they are. It's just that they're no longer reported separately. Instead, there's a consolidated category called "Linux and Platform Services," which includes: Open Enterprise Server; SuSE Linux Enterprise Server; SuSE Linux Professional; NetWare; Small Business Suite; and Cluster Services. All of the revenue gets lumped together.

In a surprising bit of marketing legerdemain, $45 million in revenue from this category was called "Linux-related product revenue." But over two-thirds of that money was attributed to Open Enterprise Server sales, with the balance coming from the other areas of the Linux and Platform Services group.

Yes, Open Enterprise Server does ship with a SuSE Linux Enterprise Server core. But it also ships with a traditional NetWare core. Who's to say which core the purchasers are thinking about when they buy? Who's to say which they install and in what numbers? Novell hasn't released any usage statistics, so we're free to make our own guesstimates, I'd say.

These third-quarter results don't reflect Novell's recent movements in Asia, buying out its Indian sales partner, as well as announcing a Chinese R&D center and a Chinese-language version of OpenSuSE. The hope is that these moves should contribute a great deal to the Novell bottom line, if not in the fourth quarter of fiscal 2005, then in the opening half of its fiscal 2006.

But will it matter? Last week, Barron's magazine labeled Novell a potential takeover target (likely buyer: IBM, Sun, or perhaps SAP). Let the rumors begin!

Tip of the week

Another potential blow to Novell's Chinese expectations is the recent launch of Asianux 2.0, a joint production of Chinese, Korean and Japanese software companies. With strong backing both from the Chinese government and database giant Oracle, Asianux is seen as a major competitor to US-based Linux vendors.

Read more about software in Network World's Software section.