Can Novell's Linux business stand on its own?

Can Novell's Linux business stand on its own?

Summary: 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.

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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.

Topics: Linux, Microsoft, Open Source, Software

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11 comments
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  • Additional things to consider

    I totally agree that Novell's fortunes in Linux is rising. There's more demand for Suse products. Just look at the job boards and see how the number of positions requiring Suse expertise has jumped.

    Suse is making inroads into smaller businesses as well. And this is where it has the greatest chance of impact, as small businesses look to cut back on their IT expenses and see how Suse SLES 10 has made things so much easier to install and configure right out of the box. This is a market with still plenty of inroads to make.

    Let's also remember one other thing, Novell's flagship product, Open Enterprise Server, which is a combination NetWare/Suse kernel product is due for its next major release at the end of September. Customers have been watching this product for months with great anticipation. And OES2 will far surpass the functionality and ease of use as OES1.

    My prediction, when OES2 is released, you're going to see a significant uptick in revenues. My experience with Novell and other vendor products is there's always a downtick when customers know the next release is just around the corner. That's clearly the pattern I'm seeing in the numbers you laid out.
    yyuko@...
  • Their headed in the right direction

    I think Novell could take their OpenSuse/SLED to the masses in a big way if they play their cards right. The only thing I didn't care for when it comes to OpenSUSE 10.2 was the update app. it takes a lot longer to check and update the repository lists than other distro's I've used and it wanted me to put one or more of the CD's in when I wanted to install or upgrade something even after I told it to use the repositories (I know I could have fixed that prob...but hey I was lazy at the time).<br>I run Kubuntu 7.04 as my main OS but I am keeping my eye on OpenSUSE because I did like many aspects of their system. It installed flawlessly detecting everything on my system, very responsive, runs quick enough I didn't feel the need to tweak it at all.<br>I wish Novell could come up with a great Quickbooks like application set that would run on Linux. The main deal breaker for most small to mid-size business's to make the jump from Windows to Linux is there's not really any equivalent app to replace Quickbooks.
    devlin_X
    • Spot on

      "The main deal breaker for most small to mid-size business's to make the jump
      from Windows to Linux is there's not really any equivalent app to replace
      Quickbooks."

      Novell has a real opportunity to encourage a partners to bring a finance package
      to Linux. Red Hat focus is on the enterprise, Novell could have a very attractive
      opportunity in the SME area and have the partner network to support these
      customers (unlike Red Hat).

      SME servers with thin clients and outsourced support is a huge potential market
      for the right Linux player.
      Richard Flude
    • I doubt that

      [i]The main deal breaker for most small to mid-size business's to make the jump from Windows to Linux is there's not really any equivalent app to replace Quickbooks[/i]

      Nothing against Linux, nor does MS pay me, (so that's out of the way) but I hardly think that Quickbooks "is the deal breaker". If that where the case, the Linux community would have the OSS version of a quickbooks like software out by now.

      Could it be that many business see no need for Linux? What is the real "cost savings"? Free vs (about) 100 dollar difference in the price of a computer with Windows XP Pro on it?

      Is that small cost savings worth the risk of OSS in the grand scheme of things?
      John Zern
      • Quickbooks is my reason for not using Linux

        My wife and I own a small business and I have written a custom work order system for it. I transfer all the accounting information programatically to Quickbooks. I do this for two reasons, I don't want to write an accounting system and the CPA we use charges less because we use Quickbooks.
        There are many small businesses that use Quickbooks on Windows machines because that is what their CPA's tell them to use. In order for the Linux community to crack the small business market, they would not only have to sell the small business but also their CPA.
        I can't recall the exact figure but I belive that 80% or more of small businesses run Quickbooks. I know a number of CPA firms that employ a full time person (or persons) that only do Quickbook support for their clients.
        I am an old UNIX guy from way back and I would love to run Linux on my business machines but I have not found a Linux accounting system that does what I want at a price I can afford.
        leobrown
  • I was going to replace Vista on a laptop I had purchased...

    But for 3 days I couldn't download SUSE 10.2 (or 10.3 beta2) via FTP, HTTP, or bittorrent (extreme slowness, silently aborting some 68% through), I decided "Forget it, I'll just disable the snazzy graphics on Vista and not worry about power problems".

    What's up with Novell? (and it's been an awfully long time between releases as well; it used to be every 6 months...)
    HypnoToad72
    • Quickbooks on Linux

      If I'm not mistaken, Quickbooks Enterprise is now available for Linux. Won't be long before it is available for small business editions, I'm sure. Hang in there!

      Or better yet, let Quickbooks know. Tell them you want their software and their software shouldn't dictate your choice of operating systems. Right now, its a chicken or egg deal with software companies saying "We'll gladly do it if the demand is there" and customers saying "Those guys aren't doing it, we'll go elsewhere." You're a customer, make your voice heard there. You pay good money for their software, youhave a right to be heard.
      yyuko@...
      • The answer to prayers (for now)

        Quoted from DesktopLinux.com

        "Last week, CodeWeavers' CEO Jeremy White sent me a quick email to give me a heads up that they were getting ready to release version 1.2 of CrossOver Office, and to offer me the chance to preview a beta version. "CrossOver Office 1.2 is going to have support for Visio and Quicken, and lots of bug fixes," said White. "If you'd be interested in more, I'd be happy to discuss it with you, or drop you a beta."

        Did I want to test Quicken on CrossOver Office? Are you kidding??? "Yes! Y-e-s! Y-E-S!," I swiftly replied. "But what about QuickBooks?" I added.

        "One of the last minute failures was in QuickBooks," White replied. "But we fixed it. QuickBooks is a *very* recent addition, and we haven't really tested it to see how well it works, but so far it look promising."

        The idea of being able to run Quicken and, more importantly, QuickBooks on my Linux system was truly exciting! Ever since fully defenestrating my desktop system back in May 2001 (it doesn't even dual boot anymore), the only program I still run on Windows is QuickBooks, which is used for my company's accounting.

        I realize there are some Linux programs that could get the job done -- but my accountant uses QuickBooks for all his clients, and it's really nice to be able to email him a QuickBooks "Accountant Transfile File" (QBX file) so he can review the status of my business, advise me on accounting procedures, and prepare my tax returns. No, despite the availability of some decent accounting programs on Linux (GnuCash, Quasar, others?), I really need QuickBooks on Linux."

        http://www.desktoplinux.com/articles/AT2282537026.html
        Ole Man
  • SKUs

    They lost me when they killed SuSE Linux Professional. I'm a home user, but don't want to deal with downloading the OpenSuSE, nor its frequent change cycle. I want a more stable, occasionally updated product, yet not locked-down so I can't tweak it. The Pro edition fit the bill on all those things for me. Now, I have to go OpenSuSE or the SLED thing. And also, Pro used to be avail at my local CompUSA and BestBuy. Nothing SuSE there now. Hmmm.
    Techboy_z
    • No downloads required...just spend a few dollars

      You can purchase Novell openSUSE 10.2 as a boxed product for $59.95 from http://shop.novell.com. Amazon may also have it available. If you want to spend even less, then order the openSUSE CD or DVD from http://www.osdisc.com. Great service and the price is going be just a few dollars. Bear in mind though that the Novell openSUSE 10.2 boxed product includes some proprietary code that does not get included in the openSUSE project releases. Of course you can download this proprietary code separately and install in yourself.
      cloudnavigator
  • RE: Can Novell's Linux business stand on its own?

    The thing to remember about Novell is that the company is not an open source "pure play" like Red Hat. Until 2003 Novell was exclusively a provider of proprietary network services software like file, print, email, directory services, systems management, identity management, etc. Today Novell is a hybrid provider of open source software and proprietary network services software that runs on Linux, Windows and NetWare.

    Novell is building out its market niche with new products and an occasional acquisition. The company seems focused and hasn't made an major mistakes in the past 4 years. As the tide turns in favor of Linux and open source software, Novell will be there with a compelling story to tell.

    Finally, the Novell-Microsoft agreement from last November was a good deal for Novell despite the disapproval coming from some of the more fanatical members of the open source community. Novell and Microsoft share certain customer interests and those interests were best served by doing their agreement.
    cloudnavigator