Novell has a new best friend when it comes to SUSE Linux distribution: VMware.
If you recall, Novell's former best friend for SUSE Linux was Microsoft. Microsoft and Novell have a partnership where the two parties had certificates that indemnified SUSE users from any intellectual property liability. In addition, Microsoft officially recommended SUSE Linux Enterprise for hybrid Windows/Linux shops. Microsoft also distributed coupons for maintenance and support for Novell's SUSE Linux Enterprise Server. The Microsoft-Novell partnership dates back to 2006.
Now that the sales pop from the Novell-Microsoft partnership has played out SUSE Linux growth has stagnated. In Novell's fiscal third quarter report, the company said Linux platform product revenue was $36 million, down 7 percent from a year ago. Linux invoicing was down 11 percent from a year ago. Dana Russell, Novell's chief financial officer, said "depletion of the original Microsoft certificates this year makes for a challenging year-over-year comparison." Russell did say that Linux platform invoicing was up 15 percent from a year ago if you exclude Microsoft certificates.
Enter VMware. In June, VMware and Novell expanded a partnership. In a nutshell, VMware will distribute and support SUSE Linux Enterprise Server with each vSphere deployment. VSphere is VMware's cloud computing operating system. The Novell-VMware deal didn't sit well with Microsoft.
On Novell's earnings conference call, CEO Ronald Hovsepian added a few more details about the VMware deal and its importance to the company. Here's what Hovsepian had to say:
In June, VMware announced it will include an OEM copy of SUSE Linux Enterprise Server with every shipment of its VSphere product at no additional cost to the end customer. VMware and its extensive network of solution provider partners will also be able to offer customers the option to purchase technical support for SUSE Linux Enterprise Server delivered directly by VMware for a seamless support experience. Finally, VMware also announced, it is standardizing its virtual alliance program on SUSE Linux Enterprise server. This expanded relationship between VMware and Novell benefits customers by reducing the cost and complexity of deploying and maintaining an enterprise operating system with VMware solutions.
As for the big picture, he said:
In terms of what it means to us being a preferred Linux guest environment on those hypervisors, that means that we'll be able to ship with the hottest software in the virtualization market, VMware, ship our SUSE Linux as I said with every addition of vSphere that goes out. So that gives us a very unique position to really be a guest in their environment and behave accordingly inside that market. Additionally, as you look at it from the standardization on SUSE Linux Enterprise server with the appliance tool as well, that also will allow us to take advantage of the wide range of application vendors that we've built on top of and certified on top of our platform.
SUSE Linux leads by a wide margin over Red Hat, the number of applications certified on its platform. The closeness of this relationship will allow us to bring about 5,300, 5,400 application vendors into the combined world of precertification into the VMware world with our platform, because it's certified on our Linux platform. So this creates a market value proposition where the customer can get the hottest hypervisor in the market, as well as creating the opportunity to bring across all those applications. So what that translates to from a competitive perspective is it really allows our operating system to play a much bigger role inside of those VMware shops for the customer, and be very collaborative and cooperative inside of that environment versus competitive.
The real kicker is that VMware has sales quotas for SUSE distributions. In many respects, the VMware deal could be more important to Novell than the Microsoft partnership. Hovsepian added:
Microsoft was really focusing on interoperability where VMware is focused on having a teaming relationship that is critical towards building a long-lasting relationship with them, with the customer, and giving the customer the option here.
Terms of the VMware deal are confidential, but Hovsepian said sales reps at the virtualization vendor have added incentives to sell SUSE support and services. Novell also noted that there will be more color on the VMware partnership at VMworld next week in San Francisco.
Piper Jaffray analyst Mark Murphy said in a research note that "we continue to believe that the emerging VMware relationship is the most interesting recent development to help offset the decay of the Microsoft partnership."
Add it up and VMware may be Novell's savior in many respects. Novell's quarter was light on revenue as customers held back purchases. Novell is exploring strategic alternatives and IT buyers don't want to deal with the uncertainty. Novell reported third quarter non-GAAP earnings of 6 cents a share on revenue of $199 million, which fell short of Wall Street estimates. Novell also declined to give an outlook for the fourth quarter.
Simply put, Novell needs a few powerful friends to gain traction among IT buyers. And with the Microsoft partnership waning, it's clear Novell's new best friend is VMware. Another possibility: VMware is a leading candidate to buy Novell.