Novell: Microsoft open source deal has halo effect

Novell reported its fourth quarter results and its Linux business continues to post strong growth. However, the growth characteristics are changing. What used to be Microsoft-fueled growth--courtesy of an interoperability and cross-selling arrangement--is now broadening via other partnerships with companies like SAP, Dell and Lenovo.

Putting a hard number on what was dubbed a Microsoft halo effect is difficult. But Novell CEO Ronald Hovsepian touched on it during the company's conference call with analysts Wednesday:

It’s very difficult to decipher the overall halo that Microsoft has. I will tell you the other relationships, like the SAP one that I had indicated in our early rollout, we saw some up-tick there and I am tracking the Lenovo and the Dell numbers. I’m just not sharing those in public but I have looked at them and those things are directionally correct in terms of where we want to see the relationship go.

That comment followed up on more color on Novell's SUSE pact with SAP earlier in the call. Hovsepian said that SAP's selection of Novell as its preferred Linux provider has landed 15 customers who have upgraded to SUSE Linux.

Add that deal in with preloaded SUSE pacts with Dell and Lenovo and Novell has diversified amid its Microsoft deal. It's safe to say that none of those deals would have worked without Microsoft paving the way.

To be sure, Novell is still dependent on Microsoft. A year into Novell's five-year agreement with Microsoft, the company has invoiced more than half of the $240 million deal. Novell has added 4,700 customers in the last year. For the fourth quarter, Novell reported Linux product revenue of $22 million, up 69 percent from a year ago.

Despite that Linux momentum Novell remains a work in progress. It is trying to transform into a pure play software company, cut expenses on back office expenses and be more efficient with its research and development. For now it's a "show me" company. And Novell's outlook was soft as the company changes its product mix.

A few key numbers to gauge Novell:

• The company reported a net loss of $17.9 million, or 5 cents a share, on revenue of $244 million. Based on Novell's continuing operations--it sold a consulting business--the company lost 3 cents a share. Total product revenue was up 10 percent from a year ago. Excluding various items, Novell reported earnings of $20 million, or 6 cents a share. Those results were ahead of Wall Street estimates of 4 cents a share, according to Thomson Financial.
• Novell had $1.9 billion in cash as of Oct. 31.
• The company also said its fiscal 2008 revenue will be between $920 million and $945 million, which was lower than expectations.