Novell financials in the black

There was, as usual, good news and bad news (and some news that might be good or might be bad depending on your point of view) when Novell released its third-quarter financials last week.

In the very good news category was the fact that both revenue and profit were up. They were up over the third quarter of last year. Up over the second quarter of this year. Up on a comparison of current year-to-date to previous year-to-date. In other words, revenue and profit were up no matter how you looked at it.

Since “profit” was rather a loose term for Novell’s bottom line over the past few quarters (i.e., “loss” would be a more honest descriptor), it was heartening to see – both for Novell stockholders as well as those of us who use, or write about, its products – that the company is once again in the black.

The bad news was that $19 million in revenue increase was due to a one-time settlement of a lawsuit against Microsoft by the Canopy Group. Canopy bought DR-DOS from Novell and then sued Microsoft, accusing the Redmond giant of allegedly trying to block sales of DR-DOS back in the days of Windows 3.x. As part of the purchase of DR-DOS from Novell, Canopy agreed to share with Novell any revenue from the lawsuit. Still, even discounting that serendipitous piece of change, the bottom line was in the black, or at least a healthy shade of gray.

The “might be good, might be bad” news is where the rest of the revenue came from. Sales of support, services and maintenance were up 15% over the second quarter. Revenue from new license sales, though, was down 16%. While many will opine that this simply reflects Novell’s chosen path away from products into the services business, others will see it as a company losing hold on its unique properties and facing a future of battling competitors over intangibles (i.e., “services”). Of course, Novell’s services revenue is more than four times bigger than its licensing revenue, so if one were going to go up while the other went down, then Novell has the right ones moving in the proper directions. That’s good news to a lot of people, and news I think I’d qualify as “good” also. But there’s still a nagging doubt or two.

I can’t help but think about Banyan Systems (I often think about Banyan when contemplating a Novell balance sheet) that, one day, abruptly stopped shipping its Vines networking software and its StreetTalk directory services only to transform itself into a services-oriented business called “ePresence,” essentially a consulting organization in the field of first directory services and later identity management. Just this spring ePresence ceased to exist as its last remaining assets were acquired by Unisys, another company that has migrated over the years from hardware and operating systems to a services-oriented approach. Unisys was formed in the mid-1980s by the merger of former computing giants Sperry (the Univac people) and Burroughs. It’s the heir to the organizations that created both the typewriter and the adding machine. Today, Unisys is best known as a company to outsource your help desk to. I’m not suggesting Novell is headed down this path, but I don’t think the Univac (nor Banyan’s Vines) is still actively supported.