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Novell Profits Hit By Restructuring, But Sales Improve

Commercial Linux distributor Novell has had a few tough weeks, with layoffs, restructurings, and departures of various executives, but the indications are that its Linux business is doing substantially better. In the fourth quarter ended for fiscal 2005, Novell said that it more than tripled sales of its SUSE Linux licenses to 65,000 units, helping to boost sales to $320 million for the quarter, up 6 percent from the $301 million in sales the company had this time last year. Because of $38 million in restructuring charges, a $2 impairment related to assets, and other adjustments, Novell booked a loss of $5 million, or a penny per share, compared to a net income of $15 million, or 3 cents a share, a year ago. Ignoring all of those charges, Novell had a $33 million non-GAAP profit, compared to a $25 million non-GAAP profit a year ago.

For the full year, Novell posted sales just under $1.2 billion, up 3 percent, and diluted net earnings of $378 million, or 86 cents per share. The reason why Novell has to focus on Linux and identity software and lay off 600 employees is that this profit only happened because of a $448 million legal settlement with Microsoft. Take away that settlement and Novell is under water to the tune of $70 million for the year. Novell exited the quarter with $1.7 billion in cash, but has designated $200 million of that for share buybacks to appease Wall Street. The company also had $406 million in deferred revenue at the end of the quarter.

Novell said that during the fourth quarter, it posted $61 million in Linux platform revenue, an increase of $418 percent, including $46 million in Open Enterprise Server sales and $15 million in sales for SUSE Linux and other Linux-related products. Stand-alone subscriptions to SUSE Linux Enterprise Server were up 216 percent compared to this time last year to 65,000 units. For the full year, Linux platform sales accounted for $148 million, up 278 percent. This latter category obviously included a lot of OES sales. OES is a hybrid NetWare-Linux offering that allows customers to run Linux services on a NetWare kernel or NetWare services on a Linux kernel.

XenSource Previews Xen 3.0 Hypervisor, XenOptimizer Tool

XenSource, the company behind the development of the open source Xen hypervisor, has given out a sneak preview of the forthcoming and free Xen 3.0 hypervisor and the company's first commercial software product, which is called XenOptimizer. Not only has XenSource been adamant about the fact that virtual machine partitioning hypervisors will become commodities, but the company has been working hard to actually make this happen. As Simon Crosby, XenSource's chief technology officer, says, the company's business model is to sell support and add-on software products on top of that hypervisor layer.

The Xen 3.0 hypervisor, which has the normal tweaks and tucks to make an existing product (in this case, Xen 2.0) work better, is in beta testing now with a bunch of financial services firms and is expected to be generally available in the first quarter of 2006. Crosby says that XenSource will provide RPMs for popular Linux distributions for Xen 3.0, which is necessary because the Xen hypervisor has to be woven into the guts of the Linux kernel so it can do instruction set virtualization. (When these virtualization features are made available in the silicon of future Xeon, Opteron, and Itanium processors, presumably this will no longer be necessary.) Specifically, XenSource will distribute tweaked versions of Red Hat Enterprise Linux 3 and 4 and Novell SUSE Linux Enterprise Server 9. While the SUSE Linux 10 desktop platform has a preview of the Xen code in it, this is not up to the Xen 3.0 snuff. Red Hat Enterprise Linux 5 and SUSE Linux Enterprise Server 10 are expected to include the finished Xen 3.0 hypervisor in the commercial releases from their respective vendors, but SLES 10 is not expected until the middle of 2006 and RHEL 5 is not expected until the end of 2006. "We are going through this interim time when Xen is ready before the distros are ready," says Crosby, but eventually they will all get in synch.

Xen 3.0 is the first iteration of the Xen hypervisor to support Intel's VT virtualization electronics. The new software will also support the Intel Xeon EM64T and AMD Opteron X86-64 64-bit main memory extensions as well as the Physical Address Extensions (PAE) that were created a few years back that allow a server using 32-bit processors to address more than 4 GB of main memory (up to 64 GB, in fact). Xen 3.0 also includes performance enhancements and supports a single virtual machine partition that spans from a fraction of a processor to across 32 processors in a single SMP box.

Xen is not just about Red Hat and Novell Linux running on X86 and X64 iron, of course. IBM is working on a port of the Xen hypervisor for Linux running on its Power-based servers, Hewlett-Packard is working on an Itanium port, and Sun Microsystems is working on a Solaris port for both X64 and Sparc iron. These are not coming out with Xen 3.0, however.

As far as customers and XenSource's investors are concerned, the interesting bit is the fact that the company is launching products that will make the Xen hypervisor more usable and make XenSource some money. With the raw Xen hypervisor, which is free, an administrator has to nonetheless manage each server physical individually, and each set of virtual servers on a physical server basis. XenOptimizer is about fixing that, and it is in fact a set of proprietary programs--which apparently will not be made available on an open source basis--that automate the provisioning of Xen virtual servers and provide fine-grained monitoring and control of processor, memory, I/O, network, and storage resources across networks of servers. Crosby won't say what XenOptimizer will cost, but he does add that the company intends for its software to be "vastly lower" in cost than equivalent software from X86 virtualization juggernaut VMware.

Scalix Sweetens the Deal on Eponymous Email Server

Linux-based email and calendaring software provider Scalix has announced a 50 percent discount on its software for customers who migrate from Microsoft's Exchange Server software. The discount is in effect until February 28, 2006. Scalix says that about half of its customers so far have come to it from the Exchange messaging software, which stands to reason since Scalix prides itself on having cloned the protocol behind Exchange (the MAPI protocol) to allow its own clients to emulate those of the Outlook email and calendaring client and, equally importantly, allowing Outlook to think that it is talking to Exchange when it is, in fact, talking to the Scalix server. The Scalix server can also be managed by Active Directory in mixed Windows-Linux networks.

Scalix has two versions of its email software: Enterprise Edition, which costs $60 per end user seat and has all the bells and whistles (including a pretty neat group calendaring feature,) and a Community Edition, which is free but has some restrictions in terms of functionality. In the first two months of availability, there were over 5,000 downloads of the Community Edition and Scalix has added hundreds of paying customers. This is why people give away software. Try and buy works--but it takes a lot of tries to get a bunch of buys.

Evans Data Survey Says Companies Are Developing New Code--Finally!

According to surveys of application developers in North America performed by Evans Data, companies are beginning to work on new applications--finally--and are starting to do so with 64-bit technologies. Evans Data surveyed 400 developers in North America for its October 2005 survey, and found that client/server application development (by which they mean two-tiered application) surged by 30 percent in the past six months; client/server technologies had been in decline among developers in the past three years, because they were apparently working on other problems. The survey also finds a 19 percent increase in developers who are spending the bulk of their time writing new code. And, significantly, development for 64-bit architectures has exploded by 61 percent since the fall 2004 survey, driven in large part by the adoption of 64-bit memory extensions for X86 chips, but also by the prevalence of 64-bit architectures for other machinery.

The latest survey pegs Java as the most commonly used programming language, with 48 percent of developers in North America using it for development. Evans Data didn't specify what the other programming languages were popular (you have to pay to see that data), but clearly Visual Basic and .NET come in as number two, probably followed by C and C++ and then other languages like RPG and COBOL. Interestingly, Evans Data found that 70 percent of developers are working mobile applications of one sort or another.

BI on Linux Gets the Attention of IBM eServer Resellers

Information Builders, one of the major vendors in business intelligence software, has announced a new business partner program targeted at IBM system resellers that can help it promote BI software on Linux. Although Information Builders' WebFocus software is best known among mainframe users, the new eServer strategy the company is putting in place will put greater emphasis on the iSeries as well as the BladeCenter, and pSeries platforms. The resellers that have partnered with Information Builders include CMA, Cornerstone Systems, Jeskell, Mainline Information Systems, MSI, NoviPro, Sirius Computer Solutions, Vicom Infinity, and Yorel

Based on the program's initial success in reaching out to the zSeries mainframe market, officials at Information Builders say representation in the other eServer markets is quickly growing. The various resellers will feature a combination of hardware, software and services for each of the hardware platforms.

"Server consolidation savings, reduced management costs and attractive hardware and software pricing give Linux a total cost of ownership (TCO) advantage in many scenarios," says Gerald Cohen, chief executive officer at Information Builders. Cohen says this TCO benefit is creating additional interest in Linux as an enterprise-level operating system. Getting this message in front of a large portion of the IBM eServer installed base is quite a feather in the hat of Information Builders. And, quite obviously, it is a message IBM would like more of its customers to take to heart.

The company's WebFocus product incorporates workload and traffic management and capacity planning. It also supports service oriented architectures. It is being used by organizations that leverage data from sources such as legacy applications and data warehouses. Information Builders claims more than 12,000 customers, including most of the Fortune 100.

IDC Says Tectonic Shifts Coming for Outsourcing

The outsourcing market was undergoing some pretty fundamental shifts in 2004, according to the market researchers at IDC. In a nutshell, deals are getting smaller, outsourcing is not just covering IT operations but also business process outsourcing (BPO), and there are more players in the market.

IDC based its assessments on the top 100 deals in 2004, which may seem a bit dated as we come to the close of 2005, but that's why its called research--it takes time to compile and sift through the information. IDC said the top 100 deals accounted fro $69.1 billion in sales in 2004, down 1.2 percent from the $68.3 billion for the top 100 deals in 2003. The minimum ante to be in the top 100 was $184 million, which was 5.1 percent higher than the entry 100th deal on the 2003 list. The BPO component of the top 100 deals grew from $10.4 billion in 2003 to $17.3 billion in 2004, which means that without BPO--which is all the rage at IBM these days and the main reason Big Blue bought the IT consulting PricewaterhouseCoopers--the IT business actually declined by 11 percent in 2004 to $51.8 billion.

IBM has seen a more pronounced shift to BPO contracts in 2005, and to smaller contracts, so it will be very interesting to see what happens when 2005 is long since over and IDC reckons what happened to the top 100 deals in 2005. It seems likely that BPO will continue to grow and more traditional IT outsourcing deals will continue to decline. What any of this says about the midrange market and the kinds of outsourcing trends customers in this market will see is unclear, but the midrange tends to lag in most trends and probably is not even accustomed to the idea of outsourcing yet, much less BPO--which amounts to having companies like IBM run your business. To which I say: Physician, Heal Thyself!