Linux Drives Novell Into The Black

May 24, 2004 (02:05 PM EDT)

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Novell continues to reap the rewards of its investment in Linux. The company on Monday reported second-quarter profits of $10.4 million on sales of $293.6 million. The quarter ended April 30 was Novell's first since acquiring SuSE Linux AG. Sales were up 6% from $276.0 million for the second quarter of 2003. The profit was a vast improvement over last year's $28.6 million loss in the same period.

Company officials attribute much of the rebound to the ability to provide customers with a clear migration message. "People who had thought about moving off of NetWare to go to Linux are now finding they don't have to move off of NetWare," Novell chairman and CEO Jack Messman said during a conference call. "They didn't understand what our future migration path was."

Novell's future is Linux, a message the company made emphatically last year with its acquisitions of SuSE and Ximian Inc., a maker of Linux desktop software. Revenue from SuSE-related software and services accounted for about $10 million of Novell's sales for the quarter, Joseph Tibbetts, senior VP and CFO, said during the call. While that's just a fraction of Novell's sales, the combination of SuSE and Ximian products allows Novell to focus on a growing market. Citing a demand for desktop Linux, the company plans to introduce during the fourth quarter a new desktop product called Sundance.

Although Novell's NetWare business continues to decline, sales of the network operating system fell only 5%, an improvement over the 12% drop during the second quarter in 2003. The company also hopes that sales of its identity-management and Web-services products and services will improve as customers learn the value of these technologies, Messman said. Novell's Nsure identity-management and exteNd Web-services offerings represented $24 million in sales, roughly 8% of total revenue for the quarter.

During the quarter, Messman said Novell would be profitable in fiscal 2004 and that his company would invest profits from other areas of Novell's business in its Linux business.