Losing Ground

By Steven Vaughan-Nichols  |  Posted 2006-03-03 Print this article Print

The problem, however, as Laura DiDio, an analyst with Yankee Group, pointed out, is that while "Novells Linux and OES revenue quadrupled from $14 million during the 2005 first quarter to its present level of $56 million. However, there is no disguising the fact that Novell continues to lose ground to Red Hat and is a niche market player in the overall server operating system business." "With each successive quarter, Red Hat widens the gap between itself and Novell in every crucial area: sales, unit shipments, market share and the number of mainstream line of business applications that support the two firms respective Linux platforms. Currently, Red Hat Enterprise sales and unit shipments are outpacing Novells by more than an order of magnitude," said DiDio.
"Yankee Group survey data," DiDio continued, "indicates that Red Hat now commands nearly 81 percent of the commercial Linux distribution market compared with Novells 17 percent. And though some companies remain steadfastly loyal to the legacy NetWare server operating system, there are far more defectors than loyalists.
"Yankee Group survey data also indicates that eight out of 10 NetWare businesses are migrating off that platform to Windows and of the remaining 20 percent—more than half are transitioning to Red Hat Enterprise Linux." Clearly, then, "If Novell fails to reverse the sales and unit shipment decline during calendar 2006, it will be extremely difficult for the company to mount any type of serious challenge to market leaders Microsoft and Red Hat. "And unfortunately for Novell, it is unlikely to get another huge revenue boost like the $448 million it received from Microsoft in 2005, so the company must move quickly to reverse its lagging fortunes," DiDio concluded. Novell, however, continues to be rich with cash, cash equivalents and short-term investments of $1.7 billion at Jan. 31, 2006. Despite this, Novell has still not acted on its previously announced common stock repurchase plan, because it has been continuously subject to self-imposed trading blackouts. Click here to read more about Novells stock buyback plan. Blum Capital Partners LP had asked for the stock buyback in the summer of 2005, along with other changes, because of its displeasure with Novells business practices. To read more about pressure for the stock buyback, click here. Looking ahead, Novell predicts that in the second fiscal quarter that it will see net income of between $272 million and $282 million. Check out eWEEK.coms for the latest open-source news, reviews and analysis.

Steven J. Vaughan-Nichols is editor at large for Ziff Davis Enterprise. Prior to becoming a technology journalist, Vaughan-Nichols worked at NASA and the Department of Defense on numerous major technological projects. Since then, he's focused on covering the technology and business issues that make a real difference to the people in the industry.

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