Novell says Microsoft deal is good for Linux business

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.