Microsoft's Linux foray props up Novell

Microsoft's Linux foray props up Novell

Summary: Microsoft's deal with Novell to resell SUSE Linux may be controversial, but it's looking like a boon for Novell. In fact, it's just about the only bright spot the Novell has right now.

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Microsoft's deal with Novell to resell SUSE Linux may be controversial, but it's looking like a boon for Novell. In fact, it's just about the only bright spot the Novell has right now.

Novell reported its fiscal first quarter figures last night. The company reported a loss from continuing operations of $20 million, or 6 cents a share, on revenue of $230 million. The results, which missed Wall Street estimates and reversed a profit a year ago, are preliminary because Novell is examining its stock based compensation practices.

Overall revenue declined 5 percent, but Novell's Linux business surged. In fact, most of the questions on Novell's earnings conference call revolved around the company's deal with Microsoft.

"We're very encouraged by our Linux platform business which saw revenue growth of 46 percent and invoicing increase over 650 percent from the quarter a year ago," said Novell CFO Dana Russell.

CEO Ron Hovsepian also talked up Microsoft.

"Our results were positively impacted by our relationship with Microsoft, a partnership that is off to a strong start, where we are executing ahead of plan. Customer reaction to our collaboration agreement is robust as evidenced by our record Q1 results. On a year-over-year basis, we recognized Linux revenue growth of 46%, Linux invoicing grew by over 650%, and Linux activated deferred revenue was up almost 300%."

Specifically, Hovsepian outlined the following milestones:

  • Microsoft and Novell published a technical roadmap;
  • Activated 40,000 subscriptions at the end of the first quarter;
  • Established a pipeline of 150 enterprise customers. The quarter closed with 100 enterprise customers and Novell is focusing on large deals.

Hovsepian said the future pipeline is also looking strong. He said: "Moving forward to Q2, we anticipate our positive Linux format to continue. Our Linux strategy to providing enterprise-wide solutions has been validated in the market. For example, we recently announced an important customer win. PSA Peugot Citron, a new customer for Novell, signed a multi-year contract to deploy up to 20,000 Linux desktops and up to 20,000 Linux servers."

Other key points that emerged on the Novell conference call:

The Microsoft deal for Novell was about grabbing customers. "The whole goal of this relationship was to get customers. That was the whole intention, from a Novell perspective, was to gain customers, and obviously revenue in return for our shareholders. But we needed to make sure we're getting customers out of this relationship to measure success, and I do believe we're getting that," says Hovsepian.

Microsoft's deal for Novell generated $348 million in cash flow. Russell acknowledged that sum is roughly equivalent to Novell's total cash flow for the quarter.

Novell's deal with Wal-Mart was accelerated largely because of Microsoft's partnership.

There's a halo effect for SUSE because of the Microsoft deal. Hovsepian said:

"I personally have been on a number of calls around the globe and literally some of the phone calls that our team has gotten been along that line of 'hey, could you add more here on the technical collaboration agreement,' 'hey, could you add more here?’ People were very enthusiastic that Microsoft was trying to reduce some of the workload for the customer in the inoperability between SUSE Linux and Windows in the marketplace. So we think that’s all goodness."

Bottom line: Critics of the Novell-Microsoft deal are going to have to get used to it. The partnership is working out too well for Novell to end it anytime soon. A few quarters of this and you could argue that Microsoft is saving Novell.

Topic: Enterprise Software

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  • that's BS!

    it was just a blip for Novell.
    That was the last gasp of air before they go down with their crooked allies from M$.
    Read Hat will rule the day!
    Linux Geek
    • ugg Redhat

      They are OK for vendor apps that require RHEL, other than that they are a pain to find any _good_ binaries, that aren't linked to ancient unavailable libs.

      You end up downloading and compiling apps manually, might as well use BSD or Gentoo if you are going to do that - at least you are notified of security updates via ports or portage.
      Suicida|
  • Baloney

    [b]Bottom line: Critics of the Novell-Microsoft deal are going to have to get used to it.[/b]

    Beg to differ, Larry. We're not even to first base on Linux adoption in the enterprise and you're trying to lay down the bottom line already? Ha!

    Fact is it's still way too early in the tide change to predict who or what model is going to come out on top. And complicating all of this are live applications, like Google Apps, and how those might influence enterprise adoption.

    Exciting times.

    And I put people who tell me what I have to get used to in the same category as people around here who feel compelled to tell me what I "need" to do and have a suggestion for where you can stick your bottom line.
    Chad_z
    • First Base

      Chad,

      Matter of opinion I suppose, but in my travels, Linux has definitely reached first base. Of all the customers I have, I have only one customer left who doesn't have at least one Linux server in the enterprise.

      I respect your opinion, but I just don't agree with it, based on first hand experience.
      yyuko@...
      • Yes, you're quite right

        As it has at my customers as well. I have only one customer not running Linux somewhere. You're absolutely right and I appreciate you pointing it out.

        What I should have written: "Linux has not reached first base on the enterprise desktop"

        Maybe a little more agreeable? For years Linux was a non-starter on the desktop, now everyone wants to see what's available.

        It's totally freakin' cool. And, as you implied, it's the experience with Linux in the server room that's driving interest in desktop installations. At least that's what I'm seeing.

        Unless you have a lot of customers running desktop Linux, which I would also consider a good thing. I only have one, besides my stuff.

        Thanks again for giving me a chance to clarify that statement.
        Chad_z
        • :-)

          Glad we were able to speak amicably and clear things up in a civilized manner. Unlike some of the other flareups that happen around here. :-)

          I agree Desktop Linux hasn't gotten to first base yet. Mainly I attribute it to one of two factors. 1) Machines already come with Windows pre-installed, so what are the customers really saving if they already paid for it? and 2) we haven't successfully defined what Desktop Linux can do for you.

          Yes you and I know it can do alot. But people are creatures of habit, and even good change can be resisted and questioned.

          I think the bigger factor in getting to first base isn't with us defining or pushing Desktop to the Enterprise. It's getting the third party vendors to start building more apps cross-platform on Linux. When that becomes a mainstream process for software developers, then we'll make headway. I believe this isn't too far down the road.
          yyuko@...
  • Kind of insulting here

    "Bottom line: Critics of the Novell-Microsoft deal are going to have to get used to it. The partnership is working out too well for Novell to end it anytime soon. A few quarters of this and you could argue that Microsoft is saving Novell."

    I resent the author's statement here. While there is no doubt that the voucher certificates have helped to boost the appearance of increased Linux sales for Novell, the author overlooks an important fact.

    Quarter after quarter, Novell has generated positive revenue stream from its Suse Linux products. The Microsoft-Novell pact has only been around since November.

    For those of us who are consultants who have worked hard over the past 2 years to bring Suse Linux into our customers' environment as a viable business solution, the author's implication that Novell's success in Linux is only a very recent overnight success is insulting.

    As for that Linux Geek in the first post... don't get me started on that idiot.
    yyuko@...
    • When the Microsoft deal

      Provides basically all of the cash flow for Novell in the first quarter you can definitely say that Microsoft is shoring up Novell's balance sheet. That said, I can see how you say that statement is strong.

      My major point I was trying to make is saying that the critics are going to have to live with the deal, which I think is fine since the world is mixed source anyway.

      If we carry this out and the Microsoft deal boosts the balance sheet, creates a halo effect etc I think the argument will be there that Microsoft saved Novell's hide. Novell has been spinning its wheels for years despite a very loyal customer base.
      Larry Dignan
      • Fair enough

        Larry,

        Fair enough and I can see how you came to that conclusion.

        My take on all of this with the Linux deal being the major revenue source of the quarter is that it is proof positive that even existing customers are moving to Linux.

        Let's face facts, NetWare isn't really going to garner new sales. Most sales come from increased user licenses where NetWare already exists in the environment. Otherwise, no one, not even Novell is really pushing hard on NetWare. So you see a noticable decline or even obliteration by certain perspectives, and it actually makes sense. Not because of declining interest, but because of declining push for it.

        The one area I DID find interesting was the decline of sales for Identity Management, considering what a huge impact it made in the last quarter. 70% increased licensing for the year. But I guess maybe that is because of already saturating the market for customers who are fans of Novell products. I don't know. Or it is just simply a downtick. Don't forget, this quarter represents the holiday season as well, and its a sucky time for sales other than retail.

        So Larry, you're right to assume that Microsoft played a big role in this quarter. But even if they did, recognize an important factor. No one says, "Okay, today we like Linux and we're going to install it right away." Everyone takes the time to consider it and evaluate it. Microsoft's success in this area was buffeted because customers were already thinking of migrating to Linux. The huge number of certificates sold (36,000+) is proof of that. And more importantly, proof that Linux is making strong inroads into the Enterprise. (Reference to that other poster who said Linux isn't at first base anymore.)
        yyuko@...
      • Misquoting yourself?

        You wrote:
        "When the Microsoft deal provides basically all of the cash flow for Novell in the first quarter you can definitely say that Microsoft is shoring up Novell's balance sheet."


        I think you're referring to this statement from the article:

        "Microsoft's deal for Novell generated $348 million in cash flow. Russell acknowledged that sum is roughly equivalent to Novell's total cash flow for the quarter."

        Microsoft paid cash to Novell as part of the IP portion of the agreement. Wasn't the net to Novell approximately $360 million?


        And then Novell was doing some business before Microsoft's helping hand.

        Look at the increases reported:

        "We're very encouraged by our Linux platform business which saw revenue growth of 46 percent and invoicing increase over 650 percent from the quarter a year ago," said Novell CFO Dana Russell.

        And from Mr. Hovsepian:

        "On a year-over-year basis, we recognized Linux revenue growth of 46%, Linux invoicing grew by over 650%, and Linux activated deferred revenue was up almost 300%."


        So 46% revenue growth is fine, but it's still less than half of the prior year total used as a comparison.

        Some significant money must have been coming to Novell pre-Microsoft deal.
        Anton Philidor
  • reminds me of an article by David Berlind

    reminds me of an article by David Berlind wrote back when the deal was signed between Microsoft and Novell, in which he mentioned that Microsoft should have purchased Novell.

    What if Microsoft purchased Novell and kept it as a seperate indpendant company.
    Not only would it help Microsft in the open source image, but also it would make sense that Microsoft reap benefits of sales that it is bring to Novell.
    zzz1234567890
  • Bill Gates is philanthropical, not Microsoft.

    Microsoft is supposed to make money. Why, then, would the company help a competitor so well?

    For context, the dollar amounts involved are not extremely large considering Microsoft's revenues and profits. But still...

    I'll suggest four answers:

    - Keeping Red Hat from becoming a commercial Linux monopoly.

    - Obtaining the Linux knowledge and entree necessary for eventual replacement with Microsoft products.

    - The access to Novell IP from when Novell was not trying to survive on income from a product which was not profitable for a much smaller company in Europe.

    - The formal recognition from one of the few possible sources that IP violations exist in Linux.

    That last seems unnecessary and may damage achieving the rest of the agreement's purposes. But I can see why Microsoft would want to continue the process of turning open source into a (weak) competitor with company names attached. Instead of a movement intended only to do damage to the ability of companies and people to survive in the marketplace.
    Anton Philidor
    • Anton, will you please lay off of the Big Lie

      "...open source ... a movement intended only to do damage to the ability of companies and people to survive in the marketplace."

      What people and companies are the open source "movement" types trying oppress anyway?

      You know it's just plain nonsense to keep trying to promote this view point. Proprietary software will run just fine on Linux. I know as I have a few applications that I BOUGHT that do.

      Then there's the small companies that can run their business and operate without tithing to MS. These companies may not be software developers or publishers, just software consumers that sell other goods and services. Does Open Source damage these entrepreneurs? Hardly.

      The only companies and people that may be discouraged or discounted by Open Source software are, well, only MS and their partners or resellers. And if that is so, well it's very good for the software consumers and just too darn bad for MS.

      Application developers can certainly profit from Open Source systems and infrastructure and there is nothing, not even the GPL, preventing them from doing so. All they have to do is create or port their product to Linux and sell it. They will probably find a much larger and more enthusiastic customers base than they expected. I certainly would be rewarding their efforts with may patronage.

      So what is it again that Open Source might do "damage" companies and people?
      jacarter3
      • Inappropriate to accept the statements...

        ... of those, especially Mr. Stallman, who provide the philosophical underpinnings to open source as a movement? I appreciate their frankness; I am criticizing the inevitable effect of achieving their goals.

        Software is considered too pure to be the basis for an industry that survives on making money from code kept from public view.

        That some proprietary - money-making, salary-paying - software runs on open source software is considered a misfortune that purists should not accept gladly.
        For example, recently Novell removed proprietary software from its regular distribution because some open source advocates were offended. The software could still be obtained, but at least Novell's name wasn't sullied. Then.

        Admittedly, code does not have to become GPL code because of its association with GPL code. But the method used must be implemented carefully, especially when version 3 begins to tighten the restrictions.

        Code from software companies must fit through the eye of a needle in order to connect with GPL code. Because evil must only grudgingly and temporarily be allowed to co-exist with good.

        Me, I tend to see salaries earned by good work as having a great deal of benefit. So I'll have to accept opprobrium from those with a different worldview.
        Anton Philidor
        • Couple corrections....

          1) You make a big mistake if you assume or associate the greater open source community with the subset that agrees with Stallman on the economics of it.

          2) You ought to consider that M$ has a fair amount of open source code in its products, notably the IE browser and the IP stack...couple of things noone wants to do without these days are the browser and networking, eh? M$ has borrowed from Berkeley and from government-funded open source projects. There *is* mutual benefit even to commercial companies to having successful open source software on the market.
          Techboy_z
          • If you follow a leader's rules...

            ... does he care too much whether you tell your friends you're crossing your fingers while you do so?
            [Crossing one's fingers can be a social gesture indicating that one does not believe what one is doing or saying.]

            Put another way, if you smash a glass pitcher with a hammer, does it change the effect if you say that you do not believe in smashing pitchers philosophically?

            The effects of actions are the responsibility of the one performing the actions.

            If you participate in an open source project whose purpose is to replicate a proprietary application closely enough to reduce sales of the proprietary software, then success means you have reduced the money available to pay the people working on that proprietary software.

            If you then say that you are not entirely opposed to proprietary software, what difference does that make?



            That said, there are various types of open source software.

            One beneficial type is experimental software, usually produced academically, which is available for individuals and companies to use in creating for-profit products. Microsoft has taken advantage of that type of free software.

            The return on such software is donations by those who or which have gained from the work.

            So, I agree, there are beneficial types of open source software. They're the ones which are not intended to reduce the number of people being paid for software production.
            Anton Philidor
          • Sorry Anton, but you're still floating the Big Lie

            I had to read this post to understand the double speak you placed in your reply to me.

            "If you participate in an open source project whose purpose is to replicate a proprietary application closely enough to reduce sales of the proprietary software, then success means you have reduced the money available to pay the people working on that proprietary software."

            What are you getting at Anton? Are you alluding to OpenOffice as a no cost replacement to MS Office? Do you believe that OpenOffice was written with the sole intent to reduce sales of MS Office and its success is significantly related to reducing MS revenue stream? If so, it's time to get your paranoia checked and get back on your meds, because you are really quite off the mark here.

            OpenOffice and its predecessor, Star Office, were written to create an alternative to a monopoly dominated market. You sound pompous enough to be old enough to remember WordStar, Word Perfect, Lotus 123, Quatro Pro, FrameWork II, Ami Pro etc. that have all been eliminated or reduced to supporting a few individuals that won't switch to MS Office products. At this time, the only way to "compete" with MS is to offer free, as in no cost, alternatives.

            If I buy Star Office, as I have done several times, am I to be labeled a commie, market ruining, "open source" miscreant?

            Or is it only if I use OpenOffice, that I get to earn your derision?

            Do you believe, honestly, that OpenOffice is designed to "replicate a proprietary application" or can you recognize that the concept of word processors, spreadsheets and presentation software preceded MS Office and that MS was not even the first company to market an "office" suite? How can you be so incredibly dense and paranoid as to believe that MS is the center of the universe and open source projects such as OpenOffice exist only to "take MS down?"

            If OpenOffice is so damn good at "replicate a proprietary application," then how does MS continue to grow their revenue stream?

            Remember when I posted a comment stating that your post was the stupidest thing I ever read from you? Well, you blew right past that milestone and created another much farther down.
            jacarter3
          • Making my argument for me.

            You asked:
            "Do you believe that OpenOffice was written with the sole intent to reduce sales of MS Office and its success is significantly related to reducing MS revenue stream?"

            You answered:
            "OpenOffice and its predecessor, Star Office, were written to create an alternative to a monopoly dominated market."

            If an alternative is successful, it will reduce sales of the incumbent.

            Good response.


            By the way, Star Office from Sun is part of Sun's plan to use free software. Sun now modifies OpenOffice and sells Star Office at a low cost. Sun has had thousands of layoffs, and opening software is a known way to reduce the need for staff.


            You also ask:

            "How can you ... believe that open source projects such as OpenOffice exist only to 'take MS down?'"


            Are you arguing that those who work on OpenOffice and advocate for it are neutral about Microsoft Office and its market share? Wouldn't that be naive?

            There are other reasons OpenOffice exists, but excluding antagonism to Microsoft isn't... plausible.


            I appreciate your comment:

            "If OpenOffice is so damn good at "replicate a proprietary application," then how does MS continue to grow their revenue stream?"

            Whatever the efforts of anti-proprietary software advocates, the public does still get to make up its own mind. That's good.

            And wouldn't you agree with me that legal or administrative actions taken in antagonism to proprietary software should be opposed? As you've said, people should be allowed to make their own choices.
            Anton Philidor
        • Inappropriate to base prejudice upon

          the statements of one individual.

          I don't care about Mr. Stallman's statements. Also, there may be "purists" that don't gladly accept proprietary software but what does that have to do with it? There a large fraction of "open source" that is based on the notion of freedom based of "free software." That is not "free" as in "no cost," but "free" as in letting the individual choose. No one can subscribe to that philosophy and also object to proprietary software choices. I believe that you're placing a strawman argument to prop up the lie that I am challenging.

          Further, I don't know what you mean by saying code "must fit through the eye of a needle in order to connect with GPL code." I have VMware Workstation running on Linux Fedora core 6. When it is installed and configured, it uses the GNU compilers and Linux source to create a set of Linux kernel modules (*.o) that are kernel specific and provide bridges to hardware and network interfaces.

          So here we have a very proprietary, licensed, and paid for application that interacts with Linux and GPL'ed code in a very, very intimate fashion. We're talking about a proprietary application using GPL'ed compilers to compile GPL'ed code to create very specific kernel resources and interfaces to run that proprietary code. That hardly seems like "eye of a needle" to me.

          Sorry Anton but your argument does not hold water. All you have managed to say is that YOU believe the LIE based on your interpretation of statements that you have related to a "philosophy." That sounds a lot like prejudice to me.
          jacarter3
          • If your definition of free software is only...

            ... "letting the individual choose" then we have little to dispute.

            Certainly you would oppose any law or rule which precludes proprietary products from consideration in any circumstances.

            Certainly you would oppose any restriction on any open source software which makes running proprietary software difficult.

            Certainly you would in general oppose open source projects intended to offer software for approximately $0 when there is no substantial improvement on proprietary software which does much the same thing.
            You would conclude - very reasonably - that the software being created is intended to reduce payment for proprietary software.

            As you say:

            "No one can subscribe to that philosophy and also object to proprietary software choices."

            Yes, we agree, let a fair market in software decide on the winners and losers.
            Anton Philidor