Novell's partnership with Microsoft to resell SUSE has drawn fire from many quarters, but in the end the deal appears to have delivered the desired effect: Jump start Novell as a Linux player.
That theory seems to be the takeaway today following Novell's third quarter results. Novell reported third quarter net loss of $3.4 million, or a penny a share, on revenue of $243 million. But the sequential numbers that seem to be getting some attention are the following:
- $73 million;
- $18 million;
- $14 million.
Those figures are Novell's Microsoft-related Linux invoicing for the first, second and third quarters, respectively. The trend quarter to quarter is clearly down. Yet Novell's Linux revenue increased 9 percent from the second to third quarters to $20.6 millon. Linux invoicing for the quarter was $38 million.
The conclusion according to some folks: Novell's Linux got a helping hand from Microsoft but appears to be able to grow on its own. Despite some heat over the latest GPL Novell's deal with Microsoft has paid off.
In a research note, SunTrust Robinson Humphrey analyst Terry Tillman said:
"It is important to note the sequential decline in Microsoft related invoicing. The decline is indicative of the company’s ability to drive Linux growth on its own and suggests that although the Microsoft deal provided an initial boost to the Linux segment, improved internal execution is helping the company establish itself as a growing, credible alternative to Red Hat’s Linux solutions. Furthermore, these results are well in excess of the market growth rate and we anticipate the trend to continue based on a number of catalysts. We believe there are still incremental catalysts that could further accelerate the Linux business, including growing adoption of desktop bookings, benefits from emerging partnerships like Dell, Lenovo and SAP, as well as continued benefits from improved blocking and tackling, such as stronger subscription renewal processes and improved sales execution vis-à-vis Red Hat."
That's an interesting thought--although I'd need more quarters to really believe it.
Why the skepticism?
Novell has been on this Linux kick for a while, but less than 10 percent of its revenue comes from Linux so far. Linux is a fast growing market, but Novell trails Red Hat, a company that simply executes better. For instance, Citigroup analyst Brent Thill notes Novell is a serial restructurer and plans to change its go-to-marketing strategy again. He calls Novell's execution uneven.
To be sure, Novell has some time to build its Linux business and there's more gravy to come. So far, Microsoft-related Linux revenue has totaled $105 million out of a $240 million expected.
Bottom line: If Novell can deliver on its Linux promise and the company can stand on its own sans Microsoft the future may be promising.