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Why Novell is cashing in on Linux

Novell made some, but not a lot of money from Linux in its second fiscal quarter, which ended April 30, 2008. The real news though isn’t the Linux income itself–$29-million–it’s that Novell year-over-year growth in Linux is up a healthy 31%.

Actually, that’s not healthy. That’s great.

While Linux remains overall a small part of Novell‘s net revenue, $236-million for the quarter, it’s SUSE Linux’s exceptionally strong growth that’s the real story.

Ever since Novell bought Ximian and SUSE and got into the Linux business, most people thought Novell would be a perpetual also-ran to Red Hat. This quarter points to Novell becoming a more serious contender for the enterprise’s Linux dollar.

And, what has made the difference? Linux lovers will hate this but I credit Novell’s continuing strong Linux growth not to its outstanding SUSE Linux or its excellent openSUSE. No, what really is giving Novell’s Linux its boost is… its partnership with Microsoft.

Novell CEO Ron Hovespian said in the quarterly news call that “Our partnership with Microsoft continues to expand.” And, “We also expanded our technical collaboration agreement to simplify and standardize the management infrastructure needed for efficient Windows Linux management. To date, we have invoiced $157 million, or 65 percent, of the original five-year, $240 million agreement.”

I’ve found the real story is that, like it or not, customers find the idea of Linux’s low cost and Microsoft compatibility to be very attractive. I know of at least $20-million IT contract where it’s that very factor, which won the deal.

It’s certainly not a popular idea in Linux circles that partnering with Microsoft can work, but, for now, at least Novell is finding that its Linux sells better with Windows technology support than without.

3 Comments

  1. While the GNU/Linux portion of Novell’s report is great, I find it interesting to look in more detail:

    see http://www.novell.com/news/press/novell-reports-financial-results-for-second-fiscal-quarter-2008/

    “For the second fiscal quarter 2008, Novell reported $30 million of product revenue from Open Platform Solutions of which $29 million was from Linux* Platform Products, up 31% year-over-year. Product revenue from Identity and Security Management was $31 million of which Identity and Access Management was $27 million, up 13% year-over-year. Product revenue from Systems and Resource Management was $41 million, up 15% year-over-year. Workgroup product revenue of $92 million was down 1% year-over-year.”

    From the Q1 2008 10Q:

    “For the first quarters of fiscal 2008 and 2007, revenue in the United States was $109.2 million and $109.8 million, respectively. Revenue from customers outside the United States was $121.7 million and $108.6 million in the first quarters of fiscal 2008 and 2007, respectively. For the first quarters of fiscal 2008 and 2007, 71% and 68%, respectively, of our revenue outside the United States was in Europe. During the first quarter of fiscal 2008, revenue in Germany accounted for 10% of our net revenue. No other country outside of the United States accounted for more than 10% of our net revenue for either period presented. No single customer accounted for more than 10% of our total revenue for either period presented.

    This is consistent with Novell cashing in on M$’s locked-in customers in USA/Europe wanting a diversified IT system, and that is good, but Novell is not making much headway on the sky-rocketing growth of GNU/Linux on the desktop outside that region. Why did Ubuntu get the call with Dell? Could it be that Novell is picking the low-hanging fruit now and will miss the wave in the rest of the world?

    Where is Suse-light for the small laptops?

    Where is a Suse GNU/Linux terminal server for schools? They do some of that for big business, but schools are lapping it up and could buy support, too.

    e.g. see http://www.novell.com/news/press/novell-introduces-suse-linux-enterprise-thin-client-solution
    Schools do not think of themselves as “enterprise”. When will Suse sell to small operations?

    Now that RedHat is semi-officially out of the desktop game, Novell should make a move. Putting Suse into the hands of children around the world would give them a future in the rest of the world where RedHat is making lots of business. Perhaps Novell is content to remain a small player forever. It would be really interesting to know how much of their growth is server licence/support and how much is desktop. It would be really interesting to know how many small operations are dealing with Novell. There are 100 times as many seats in small operations than in large ones. It is just easier to sell to big operations but M$/RedHat got there first. Cannot Novell see that?

  2. Perhaps I’m missing something, but… What’s “more Windows-compatible” in Novell’s flavour of Linux than in any other distro?

  3. SUSE Linux can work more easily with Active Directory, it can work with Server 2008’s virutalizaiton–and vice-versa–and there are several other practical reasons they work better together. MS and Novell have been working on this for some time. For more details on what they planned, most of which either now exists or is on its way, see:
    http://practical-tech.com/operating-system/microsoft-novell-expand-on-technical-collaboration-plans/

    Steven