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.