But Wait, There's More

Vice Chairman Stone, the Man Behind the SuSE Deal, Departs Novell

Chris Stone, who has been vice chairman of Novell since March 2002 and who was one of the key players that compelled the company to acquire commercial Linux distributor SuSE last year, has decided to leave the company "to pursue other interests." Stone, like many people, had started his own dot-com startup in late 1999 (it was called Tilion), and was executive vice president of corporate strategy and development at Novell from 1997 to 1999. He was the main person who started moving Novell into open source projects back in that dot-com era. Stone was perhaps most famous as the founder of the Object Management Group, which established the CORBA distributed and object-oriented computing standards. Prior to setting up OMG, Stone spent a decade at Unix server maker Data General (which was acquired by and killed by EMC in various positions).

Stone has not said what he plans to do, but it will likely involve IT and quite possibly open source. He has not been replaced at Novell, and Jack Messman, chairman and CEO of the company, will be assuming his responsibilities.

Mandrakesoft Sees 33% Revenue Growth in Fiscal 2004

Commercial Linux distributor Mandrakesoft, which has dual headquarters in Paris, France, and Altimeda, California, announced this week that its sales were up 33 percent in fiscal 2004. This must have come as a tremendous relief to the company, which emerged from French-style bankruptcy protection in April 2004.

Mandrakesoft had sales of 5.18 million euros, with online software sales and licenses accounted for 77 percent of total sales, up from 66 percent last year and 43 percent the year before. Mandrakesoft said that retail sales, which used to be the company's dominant means of getting money, now account for only 15 percent of sales. The company's professional services business (which includes tech support, training, and consulting only accounted for 8 percent of total sales, down from 11 percent this time last year). Mandrakesoft said that its Linux sales were accelerating as it closed its fiscal year at the end of September, with sales up 49 percent in the past six months. The company is also pretty happy because it has 1.64 million euros of deferred subscription revenues and order backlogs as it exited the year. Mandrakesoft says that it is profitable, but did not say by how much, which is peculiar.

HP Says Itanium Ecosystem Is Still Expanding

As the main proponent of the Itanium 2 processor for server platforms, Hewlett-Packard has borne the brunt of criticism from rivals about that processor. One of the primary metrics that everyone keeps watching is how big the Itanium application ecosystem is. Don Jenkins, vice president of marketing for HP's Business Critical Systems unit, which is responsible for the HP Integrity, AlphaServer, and NonStop server lines, says that there were 2,700 applications available for the Itanium servers by the end of this summer, about 200 more than the goal that HP and Intel had set for Itanium earlier in the year.

Jenkins also is quite happy with the acceptance of the Itanium-based Integrity line. In the most recent quarter, ending July 31, about 25 percent of server shipments sold by the BCS unit were for Itanium-based systems, and the company expects to hit the halfway mark for BCS shipments sometime in 2005. Our guess is around the middle of the year.

IBM to Launch New Express Products, Ad Campaign

As part of its renewed focus on small and midsized businesses, IBM last week launched three new Express products and disclosed plans for a $200 million advertising push for its Express product line. The new Process Integration Solution Express offering includes the WebSphere Business Integration Server Express product preinstalled on an iSeries or xSeries server for as low as $2,259 per month. The new Integrated Platform Express for Web Application Serving is designed to help customers develop, deploy, and manage dynamic Web sites and includes WebSphere Application Server Express running on a pSeries server, with the option to buy a TotalStorage disk array and a DB2 database. The Workplace Services Express includes IBM's WebSphere collaboration and portal server offerings pre-loaded on a Windows or Linux server (which could include xSeries, pSeries, or iSeries servers; IBM did not say). Pricing for and availability of these three new offerings, all of which include the option of IBM financing or Global Services, will be announced later this year.

IBM, which has a policy of not advertising specific eServers, except for its "standards-based" xSeries with Intel processors located inside, also announced that it is investing $200 million in a new advertising campaign to alert small and midsized businesses to its 70-offering strong Express Portfolio. IBM says the SMB segment of the overall IT market is worth $300 billion per year and is both the largest and the fastest growing segment of the market. IBM also launched a flashy new Web site dedicated to its Express Portfolio.

VERITAS Delivers Improved OpForce Server Provisioning

Storage software specialist VERITAS Software has aspirations elsewhere in the IT market, and that is one reason it bought server provisioning software maker Jareva Technologies last year. This week, VERITAS has upgraded the OpForce 4.0 Enterprise Edition server provisioning tool so it can remotely install unattended instances of Microsoft Windows Server 2000 and Windows Server 2003 and Red Hat's Enterprise Linux AS 3 on bare iron. The software had already supported provisioning for IBM's AIX and Sun Microsystems' Solaris as well as Novell's SUSE Linux Enterprise Server. It stands to reason that support for HP-UX will soon be added to OpForce. OpForce 4.0 is set to be available in mid-November, and costs $7,500 per management server and $500 per managed processor.

Cray Takes Big Writeoffs, Cuts Revenue Projections for 2004

Supercomputer maker Cray, which is in the midst of three major product transitions, gave Wall Street a bit of a shock last week as it announced that it would post a loss of $111 million in the third quarter and scaled back its sales projections significantly for 2004. In the quarter, Cray posted sales of $45.9 million, down 35 percent, but more than double the sales it posted in the second quarter of 2004.

The supercomputer market, and particularly the very exotic, high-end machines that Cray has, in its various incarnations, always sold makes for volatility in sales. This is one of the reasons why Cray bought OctigaBay for $115 million this March; the Canadian supercomputer maker had created a product that could scale down to relatively small high-performance computing (HPC) systems as well as scale up to very large boxes with teraflops of power. By having many different style of computers--the XT3 parallel Opteron machines that comprise the "Red Storm" Linux super, the XD1 Linux-Opteron machines designed by OctigaBay, and the X1E vector processors--Cray hopes to cover more HPC workloads and more customers, and therefore get a bigger piece of the HPC pie.

As enthusiastic as current and potential Cray customers have been about its new technologies, what Wall Street counts is money, and Cray seems to have been facing some issues in this area. But to be fair, Cray is selling very large HPC gear and its sales are dominated by big deals. Shifting a few deals forward a quarter or more can have a radical effect on immediate sales. Because of the high volumes in the server market at large, vendors are less susceptible to huge revenue swings.

For the quarter ended September 30 and for the remainder of the year, Cray is facing the nightmare of all server makers: parts shortages.

"While shipments of both the Cray XT3 and Cray X1E systems will start in this quarter, due to a parts availability issue with key components, we will not ship sufficient new systems in time to generate as much revenue as planned," said James Rottsolk, Cray's CEO in a statement accompanying the company's financials.

The parts shortages, which are apparently due to yields from IBM Microelectronics for X1E multichip modules (which were running six months late) and router chips for the Red Storm machines, combined with lower than expected sales of the X1 vector machines will knock out roughly $35 million to $45 million in sales this year for Cray. The company had been expected to post around $200 million in sales for 2004, but now estimates that it will only hit somewhere between $155 million and $165 million. On a conference call with Wall Street analysts, Rottsolk said that Cray had been expecting brisk sales from the government sector, and that did not materialize, particularly with the Cray X1E kickers coming down the pike at the end of 2004 and ramping up through the first half of 2005.

Last week, Cray's chief financial officer, Scott Poteracki, said he is leaving the Seattle-based company to move back to California, and Kenneth Johnson, Cray's current general counsel and former CFO, has taken over this role. Poteracki is set to become CFO at MTI Technology Corp, a storage systems integrator based in Tustin, California. Poteracki's departure does not seem to be related to Cray's current financial woes.

Cray's $111 million loss for the quarter amounted to a $1.27 per share loss, compared to net income of $8.5 million or $0.10 a share in the year ago quarter. The biggest charge is a $69.8 million charge that more or less reverses a tax asset that Cray booked in the fourth quarter of 2003. Cray also write off $8 million in excess X1 supercomputer inventories. Rottsolk said that about 60 percent of product sales in the quarter came from Red Storm supercomputer for Sandia National Labs and the engineering work related to its future "Cascade" vector supercomputers; most of the rest of sales in the quarter came from the X1s. The remainder of the writeoffs covered restructurings and the OctigaBay acquisition. Rottsolk said that the Red Storm project, which Cray took on two years ago to cover the engineering costs of a new product line (which is now productized as the XT3), has gone from being a project that might have yielded 4 percent profits, is now running at breakeven.

Cray is looking forward to pushing sales of the X1E, the XT3, and the XD1 in 2005. Cray has no debts and left the quarter with $47.2 million in cash in the bank, so it is remaining calm and still expects to have sales in the range of around $300 million next year.

SGI's Sales Are Down, but Losses Shrink, Too

Unix and Linux server vendor SGI reported financial results for its fiscal first quarter, ending September 24. Sales in the first quarter were $174.6 million, down 14 percent. Product sales (predominantly servers and storage but also some Unix workstations) were $97.2 million, down 18 percent, while services revenues were $77.4 million, down 8 percent. By cost cutting across the board (R&D, SG&A, and so forth), SGI was able to reduce its operating loss to $26.6 million in the quarter, compared with an operating loss of $44.4 million this time last year. The company posted a net loss of just under $28 million, which worked out to $0.11 a share.