Novell Books a Loss in Its Fiscal 2007 Fourth Quarter

Published: January 8, 2008

by Timothy Prickett Morgan

Just before IT Jungle went on holiday in December, Novell delayed reporting its financial results for the fourth quarter ended October 31 and the full 2007 fiscal year. But a week later, the company sorted out the numbers and put out its results, booking revenues of $244.9 million, up 4.8 percent, but the company swung to a $17.9 million loss in the quarter, compared to a $21.2 million profit in the fourth quarter a year ago.

The financial results did not include $6 million in sales from Novell's Switzerland-based consulting business, which Novell sold during the quarter. The results did include $25.2 million in restructuring charges and $1.2 million that Novell received from selling its Japanese consulting group. (The amount Novell received from its Swiss consulting unit was not detailed.)

During the fourth fiscal quarter, Novell had $51.1 million in software license sales, up 10.8 percent; $128.3 million in maintenance and subscription sales, up 9.3 percent; and $65.6 million in services revenues, down 6.7 percent. Novell's Open Platform Solutions unit had $32.8 million in sales and a gross profit of $22.7 million; this is the unit where most of its Linux-related sales come from. Linux platform sales--which is mostly SUSE Linux Enterprise Server licenses--were $22 million, up 69 percent, in the fiscal fourth quarter. The company said that invoicing for Linux platform products was up 108 percent in the quarter to $46 million, revenue that will be gradually recognized over coming quarters.

Novell's Identity and Security Management unit had sales of $54.7 million and had a gross profit of $29.7 million. The company's Systems and Resource Management unit posted sales of $45.6 million and gross profit of $36.9 million, while its Workgroup unit (which is where NetWare and Open Enterprise Server reside) had sales of $111.8 million and a gross profit of $92.1 million. Open Enterprise Server (which is a mix of Linux and NetWare based on a Linux kernel and offering a NetWare 6.5 license in the bundle) accounted for $44.9 million in sales, while pure NetWare sales accounted for just under $6 million. Novell's collaboration tools--mostly GroupWise and included in the Workgroup unit--had $25.7 million in sales and other workgroup products brought in $11.2 million in sales in the quarter.

For the full fiscal year, which was a dramatic one for Novell, the company reported $932 million in sales, up 1.4 percent, and a loss from continuing operations of $26 million, which was not better than the $4 million in profits in fiscal 2006. The company ended the fiscal 2007 year with $1.9 billion in cash, equivalents, and short-term investments, a pile of money that grew by $400 million thanks in large part to the Linux distribution agreement that the company announced in November 2006 with Microsoft.

"We are pleased with our overall results for 2007," explained Ron Hovsepian, Novell's president and chief executive officer in a statement accompanying the financial results. "While undergoing transformational change, we grew revenue and exceeded our operating targets. We are on the right path to long-term, sustainable profitability."

Looking ahead, Novell said that it expects sales of between $920 million and $945 million in its fiscal 2008 year, and non-GAAP operating margins in the range of 7 percent and 9 percent. No company, Novell included, is willing to peg its future possible net income. But presumably Novell is going to work as hard as it can to be profitable in fiscal 2008, much as it does every year.

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