Where Novell makes its money

* Peering into Novell's Q3 balance sheet

Novell reported its third quarter earnings last week (earnings PDF)- third quarter, because the company's fiscal year begins Nov. 1, each year.

Overall, it was about what the financial analysts had predicted - revenue of $241 million compared to $252 million for the previous third quarter. It's also down from the second quarter when it was $278 million (see the newsletter about the second quarter).

Note also that this was called a preliminary release because Novell, like most companies in the high-tech sector, is re-examining its behavior in the granting of stock options over the past years to see if there's a need for restatements (for background on the stock options issue, see "Users keep tabs on vendor backdating").

But the overall numbers don't interest me as much as the performance of various product segments. Novell reported revenue of $12 million from Linux platform products, up 30% from the same period a year ago, while Open Enterprise Server and other "NetWare related products" declined 19% from the year ago period. And while the 30% increase in Linux business sounds encouraging, that $12 million is still less than 5% of the company's overall revenue, hardly something to crow about. And a closer look shows that OES revenue actually went up - from $31 million to $45 million - almost four times the Linux revenue. "NetWare related products" - which must be mostly NetWare Small Business Suite, a discontinued item - did plummet in revenue, but that's only to be expected as the company actively discourages buyers for it and pushes them towards other products.

The real interesting number was that revenue from identity and access management was $26 million, up 46% year-over-year. That's a big increase, especially for established products such as Identity Manager, eDirectory, Sentinel and more. It also represents more than 10% of the company's total revenue for the quarter - more than twice the revenue that Linux provided.

GroupWise and other collaboration products also showed an increase of about $2 million, with quarterly revenue of just over $25 million.

So if we just add together OES ($45 million), identity products ($26 million) and GroupWise ($25 million) we come up with $96 million in revenue for the quarter out of the $241 million reported - that's just about 40% of the company's revenue. If we look at the software and licensing revenue (reported as $163 million for the quarter), that's just under 60%.

It's too bad that, while the company breaks out revenue by product line (or "solution," as Novell calls it) it doesn't do the same with expenses. It might be interesting to see where the bulk of the profit (or loss) is actually coming from.

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Copyright © 2006 IDG Communications, Inc.

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