Novell Attributes Profit to SuSE, Open Source Momentum

by Alex Woodie

Novell says its positive second quarter financial results reflect a ratification of its Linux strategy by customers. The Salt Lake City, Utah, company last week announced results for the quarter ended April 30--the first full quarter since it acquired the Linux distributor SuSE for $210 million--and despite only $10 million in sales attributable to SuSE products and services, company officials said Linux and open-source software benefited the company in other ways.

Novell reported total revenues of $294 million and net income of $10.4 million for its second fiscal quarter. This amounts to a 6.5 percent year-over-year increase in total revenue, and a strong turnaround from the $28.6 million loss the company posted during the second quarter of 2003. For the first six months of fiscal 2004, Novell has reported total revenues of nearly $561 million, a 4.5 percent increase from 2003.

Progress for Novell's second quarter was measured in terms of stemming the tide away from Novell's core NetWare business; it is in this regard that company officials say SuSE was most successful. For the second quarter, NetWare-related revenues declined by only 5 percent at constant currency, compared to a decrease of 12 percent during the second quarter of 2003. Novell chief executive, chairman, and president Jack Messman attributed this 7 percent turnaround to SuSE, Linux, and open source technology. "Customers increased their commitment to Novell in part based on the image of Novell as a driving force for change in information technology, often through use of open source technology," Messman said in a conference call.

Novell sold Linux software and services to several Fortune 500 accounts during the quarter, but those companies wouldn't let Novell use their names. "While many CIOs are still cautiously optimistic, the compelling cost savings that Linux presents to them is a recurring theme from our recent experience in the market," Messman continued. "As Linux enters the marketplace with momentum, it is bringing with it a decline in hardware pricing, which opens up additional funds for software and services spending."

Since its acquisition of Linux distributor SuSE and Linux productivity software provider Ximian in 2003, Novell's strategy has taken a decidedly open source turn. Two weeks ago, the company announced that more than 10,000 developers have signed on with its DeveloperNet program in the last six months, while registration on its open source development Web site, Novell Forge, has increased by 60 percent since the SuSE acquisition officially closed in January.

Novell's outlook has also been buoyed by its partnership with IBM, which has invested $50 million with Novell for SuSE and open source development. Big Blue also offers the SuSE Linux Enterprise Server 8 distribution pre-loaded on all of its eServers, which makes SuSE Linux one of the two operating systems that span IBM's entire server line. The other platform that runs on all eServers is, of course, Red Hat's Enterprise Server 3.