Novell’s Linux jumps but firm’s sales dive

Software maker Novell said sales of its Linux platform products jumped 32% during its fiscal fourth quarter. However, the firm saw overall sales decline as its older legacy products continue to fall out of favour.

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By  Published  December 16, 2006

Software maker Novell said sales of its Linux platform products jumped 32% during its fiscal fourth quarter. However, the firm saw overall sales decline as its older legacy products continue to fall out of favour.

Overall sales dropped to US$245million in the quarter ended October 31, from US$288million in the same period last year, dragged down by weak performance of Open Enterprise Server and NetWare.

Profitability was up, however, with the company recording net income of US$25million for the quarter in comparison to a net loss of US$6million in the fourth quarter of 2005.

“We are pleased with the progress we made in our key growth categories of Linux and identity in fiscal year 2006,” said recently-appointed CEO Ron Hovsepian, who has been tasked with growing the company’s Linux business. Hovsepian took over from Jack Messman as CEO in June.

“Coupled with the unprecedented Linux partnership with Microsoft just recently announced, we will add significant momentum to our Linux business,” he claimed.

Microsoft and Novell signed a series of business, marketing and intellectual property (IP) agreements to promote interoperability between Windows and Novell’s Suse Linux server and desktop platforms in May.

Analysts, however, were less impressed with the results and Novell’s share price dropped almost 6% on the US Nasdaq stock exchange on the news.

“Overall these are disappointing results,” said Jefferies & Co analyst Katherine Egbert in a report by news agency Reuters.

The company further dented customer confidence by announcing it would incur additional restructuring charges this financial year, without specifying specific amounts.

It has already spent some US$150million in restructuring charges over the last five years as it attempts to halt a decline in revenues and increase its profitability.

For the full year, Novell saw its revenue slip below the billion dollar barrier — falling to US$967million from US1,039 billion in 2005. It recorded net income of US$21million in comparison to net income of US$373million in 2005, which included a US$448million net legal settlement with Microsoft.

Given its mixed results, Hovsepian was cautious on the company’s future outlook, predicting net revenue for 2007 to be between US$945million and US$975million.

Novell, which established itself in the 1980s selling networking systems to personal computers, has been seeking to reinvent itself in recent years by focusing on its open-source Linux operating system (OS).

Novell said its results were preliminary as it, along with several other IT companies, is currently reviewing past stock-based compensation practices.

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