Declining Software Fees

By Steven Vaughan-Nichols  |  Posted 2005-08-25 Print this article Print

Analysts had expected a profit of 2 cents per share on revenue of $300.9 million. During this quarter, Linux-related product revenue contributed $44 million, including $31 million from sales of Novell OES (Open Enterprise Server).
OES bundles both NetWare and SLES (SuSE Linux Enterprise Server) into one package; sales of 28,000 standalone copies of SLES generated $8 million of subscription income.
Novell CFO Joe Tibbetts said that these numbers dont reflect the full impact of Linux on Novells bottom line or its customer base. "NetWare use continued to decline," said Jack Messman, Novell CEO in a teleconference. "But," Messman added, "its decline rate has been less than it has been historically. In a July survey of OES buyers, 65 percent of customers are using OES to move from NetWare to Linux." Declining software license fees were largely responsible for Novells weak bottom line, falling to $45.6 million in the quarter from $57 million a year ago. Tibbetts pointed out, though, that in part this was because Novells new contracts are more long-term and multi-element than previous contracts. This means that revenue, which might have been recognized immediately as sales revenue, will now be recognized over time as support revenue. For the first nine months of fiscal 2005, Novell reported revenue of $877 million and net income available to common stockholders of $382 million, or 88 cents per diluted common share. This includes a $448 million net legal payment from Microsoft for unfair practices. Read more here about Microsoft paying $536 million to end an antitrust battle with Novell. Looking ahead, Messman said, "Customers continue to embrace Novells Linux and identity solutions. We were particularly pleased with our initial penetration of the Chinese market where Linux is an attractive technology for government and commercial users." Novell is making a strong move into the second-world market. Besides deals in China, Novell has recently realized several large deals in Brazil. Next Page: "A stronger Novell."

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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