On a superficial level, Novell‘s third quarter, which ended July 31, 2008, didn’t look that good. A closer look reveals though that Novell did quite well in general and extremely well with its Linux business.
According to the company press release, “For the quarter, Novell reported net revenue of $245 million.” This was up from Novell’s net revenue of $237 million for the third fiscal quarter 2007. “Income from operations for the third fiscal quarter 2008 was $1 million, compared to a loss from operations of $10 million for the third fiscal quarter 2007. Loss from continuing operations in the third fiscal quarter 2008 was $15 million, or $0.04 loss per share, due to a $15 million impairment charge related to our auction-rate securities.”
Auction-rate securities, to those of you who know more the Linux kernel than exotic financial issues, are long-term bonds. What makes them odd is that their interest rates are set by weekly or monthly auctions. Companies have been using them in the last few years as a way to raise money. Unfortunately, investors have tended to give up on buying these securities because they don’t think that they can move them. In other words, they no longer have any faith in the securities’ liquidity. What that means for Novell, and many other companies, is that their debt has gotten much more expensive than they had expected it to be.
For companies in financial trouble, this spells trouble. Novell is anything but a company in financial hot-water. Even after Novell purchased PlateSpin, data center workload lifecycle management company, repaying part of its debt and buying back some of its stock, Novell has $1.4 billion in cash, cash equivalents and short-term investments.
The real news for Linux users, though was that of Novell’s $33 million of Open Platform Solutions product revenue $31 million of it was from Linux Platform Products. In other words, Novell’s Linux business was up 30% year-over-year. Novell’s other business areas also grew at a healthy pace. “We had another quarter of strong product revenue growth and expanding operating margins,” said Ron Hovsepian, Novell’s CEO in a statement. “Our transformation of the company positions us well to focus on sustained growth in 2009.”
Indeed, Novell recently expanded its Microsoft deal. Some people see this move as betraying open source, but as Novell PR director Ian Bruce wrote in response to my column on this latest advance in the partnership, “Novell’s agreement with Microsoft is in no way an acknowledgment that Linux infringes upon any Microsoft intellectual property. When we entered the agreement with Microsoft, Novell did not agree or admit that Linux or any other Novell offering violates Microsoft patents.”
What Novell will admit to though is that both Linux, and its partnership with Microsoft, has done extremely well for the company.