Where Novell’s money is coming from

Novell announced its second quarter earnings last week and, as frequently in the past, I waded through the legalese looking for clues as to the direction of the business and what it means to NetWare users. Evidently, though, in addition to computer software Novell is now in the business of obfuscation.

At one time, Novell broke out earnings and revenue by product line. Now, though, it’s by the “N” groups (you know, Nterprise, Ngage, Extend and Nsure) that combine a mish-mosh of products into one reporting category.

NetWare becomes part of the “services platforms and storage” category within the Nterprise group along with Cluster Services, Small Business Suite, Nterprise Branch Office, iFolder and SuSE Linux. Not surprisingly to you and me, this was the No. 1 revenue-reporting category. It was up over 10% from a year ago and 16% from the first quarter. By contrast, the Management & Collaboration category within the same Nterprise group was only up .2% from last year and virtually unchanged from the first quarter.

While Small Business Suite, iFolder and Nterprise Branch Office are all terrific products, they are niche products – none is going to contribute heaps of money to the bottom line. That leaves NetWare and SuSE Linux as the big contributors to the largest revenue-producing category. Marketing and Jack Messmann would have you believe that the addition of SuSE is what drove the marketing gains here. And they just might be right.

While all the spreadsheets and reports Novell released in its earnings report fail to break out any numbers by specific product line, I was told that $10 million of the $90 million-plus reported in the NetWare/SuSE category could be attributed to the Linux product. Not license sales, of course, but maintenance and service contracts. Take that money out of the equation and we can extrapolate that NetWare revenue was down slightly (1.2%) from a year ago but up slightly (6%) from last quarter.

The importance of maintenance and service contracts associated with the Linux purchases (Ximian as well as SuSE) is confirmed when we look at the revenue breakdown comparing new and renewal license revenue with maintenance and support revenue. Almost $4 out of every $5 taken in (79.9%) came from maintenance and support contracts and services, with only $1 in $5 being contributed by license sales. That’s a new high for maintenance and support (and a new low for licensed products) in quarterly revenue breakdown.

 Not only is Novell slowly regaining momentum, but it could be the poster child for the new, 21st century emphasis on services business rather then product-based business. And while the momentum and the revenue “gravy” appears to be coming from the Linux side, it all benefits NetWare and that’s what we really care about.