12.07.08

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Novell’s Financial Results for Q4: Synopsis

Posted in Finance, GNU/Linux, Novell at 11:33 am by Dr. Roy Schestowitz

Pie chart

WE wrote about this briefly on Thursday, just hours after the results had been published. Here is a more comprehensive roundup of Novell’s financial results.

Anticipation

Ahead of the results, Novell’s stock was quite shaky and rocky. It declined sharply for several consecutive days. Here is an earnings preview (also here).

Novell, Inc. (NOVL: News ), a provider of open source software for businesses, is scheduled to report financial results for its fourth quarter and fiscal year 2008 after the markets close on Thursday.

Previews also appeared in:

Announcement

Here the press release with a very generic headline.

Novell, Inc. (NASDAQ: NOVL) today announced financial results for its fourth fiscal quarter and full fiscal year ended October 31, 2008. For the quarter, Novell reported net revenue of $245 million, consistent with the fourth fiscal quarter of 2007. Loss from operations for the fourth fiscal quarter of 2008 was $6 million, compared to a loss from operations of $13 million for the fourth fiscal quarter of 2007. Net loss in the fourth fiscal quarter of 2008 was $16 million, or $(0.05) per share, which included a $14 million impairment charge related to the Company’s auction-rate securities. This compares to a net loss of $18 million, or $(0.05) per share, for the fourth fiscal quarter of 2007. In the fourth fiscal quarter of 2008, foreign currency exchange rates did not materially impact net revenue and favorably impacted operating expenses and loss from operations by $1 million compared to the same period last year.

Associated Press has a copy of its report in Yahoo.

Software maker Novell Inc. said Thursday its loss for the fiscal fourth quarter narrowed, meeting Wall Street estimates.

More here:

Waltham, Massachusetts-based software maker Novell Inc. (NASDAQ: NOVL) registered fourth-quarter net loss of $16.3 million, or 5 cents a share, compared with a net loss of $17.9 million, or 5 cents a share, in the same quarter a year earlier.

Microsoft’s MSN put up some articles about it too.

For the fourth fiscal quarter of 2008, product revenue increased 6%, but was offset by a services revenue decline of 26%, resulting in total revenue of $244.7 million. Revenue was essentially flat from the prior year — down 0.1% year-over-year — and shy of the consensus estimate that called for $249.8 million.

Another one:

Revenue was essentially flat at $244.7 million, from $244.9 million a year ago. Analysts, on average, were looking for $249.8 million.

And another one from MSN:

Novell reports EPS in-line, misses on revs Reports Q4 (Oct) earnings of $0.06 per share, in-line with the First Call consensus of $0.06; revenues fell 0.1% year/year to $244.7 mln vs the $249.8 mln consensus.

Optimists

Matt Asay, a former Novell employee (but also a former critic), spoke about Novell ahead of the results.

Analysts are almost universally giving Novell’s stock a price target in the $8 range, yet the company’s stock currently trades for roughly half that. The same is true for Red Hat, which trades around $9 per share, yet has most analysts targeting double (or more) than that.

With this in mind, will it really matter if Novell and Red Hat report strong earnings? Probably not, at least in the short term. No good deed goes unpunished…

He is pushing Red Hat to become more like Novell in certain ways (not patents) and he posted something after the results had come out.

Novell delivers another 33 percent quarterly rise in its Linux business

[...]

In case Red Hat had ever been tempted to be complacent, Novell’s consistently good Linux numbers should eradicate that temptation. Novell is a viable Linux competitor again. Sure, much of its success, at least initially, is owed to the grace of Microsoft, which would be foolish to bet on long term.

As Alan Lord correctly points out in the comment, “you have to ask yourself how much of that Linux number are “real” sales and how much is Microsoft’s pocket money?”

There are more of those who isolate the Linux component of Novell as though the company can just rely on this small portion of itself. Colin Barker, for instance, summarised Novell’s news as “Novell reports leap in Linux revenues.”

Novell’s Linux business grew by 33 percent over the fourth quarter last year, according to the company’s latest financial figures. Identity and access management revenues were up 11 percent compared to the same period last year, and systems and resource management revenues climbed 15 percent.

Sean reported similarly.

How confident is Novell’s CEO Ron Hovsepian about the appeal of Linux? He is calling the open source operating system a key driver helping to push the company through the current global economic slowdown.

The VAR Guy picked on the bad points too:

1. Top-line Revenue: Novell’s overall quarterly revenues were $245 million, flat compared to last year’s corresponding quarter but $5 million below Wall Street’s expectations, according to Reuters.

The VAR Guy’s Spin: Bummer. But our resident blogger isn’t so concerned about Novell’s top-line revenues. Rather, he’s preoccupied with SUSE Linux revenue growth.

2. SUSE Linux Revenue: According to Novell’s press release, the company “reported $36 million of product revenue from Open Platform Solutions, of which $33 million was from Linux Platform Products, up 33% compared to the same period last year.”

The VAR Guy’s Spin: Mixed reaction. Thirty-three percent growth is impressive in a horrendous economy.

But consider this: Novell says it generated $120 million for the year from Linux Platform Products. That’s not much money within the overall IT industry…

For this analysis, overall, thumbs up must go to Joe P. He was able not only to see but also to list the weaknesses which Novell tried so hard to hide in the press release (followed by very shallow coverage from the 'press').

In a nutshell, Novell’s revenue is down (Netware is dying) and losses continue. Unless Novell can reverse this, it’s a leaking ship. And Microsoft won’t be around forever to prop it up.

Netware is to Novell what UNIX was to SCO. Microsoft (and/or investors) abandoned SCO after a while, maybe because it was no longer able to exploit it so much after it turned out that Microsoft had sent proxies like Larry Goldfarb and BayStar to feed SCO’s lawsuits against Linux. As a reminder:

“…Microsoft wished to promote SCO and its pending lawsuit against IBM and the Linux operating system. But Microsoft did not want to be seen as attacking IBM or Linux.”

Larry Goldfarb, Baystar, key investor in SCO

“[Microsoft's] Mr. Emerson and I discussed a variety of investment structures wherein Microsoft would ‘backstop,’ or guarantee in some way, BayStar’s investment…. Microsoft assured me that it would in some way guarantee BayStar’s investment in SCO.”

Larry Goldfarb, Baystar, key investor in SCO

“Microsoft hardly needs an SCO source license. Its license payment to SCO is simply a good-looking way to pass along a bribe…”

Bruce Perens

“On the same day that CA blasted SCO, Open Source evangelist Eric Raymond revealed a leaked email from SCO’s strategic consultant Mike Anderer to their management. The email details how, surprise surprise, Microsoft has arranged virtually all of SCO’s financing, hiding behind intermediaries like Baystar Capital.”

Bruce Perens

On ARS

Timothy at The Register explains the effect of auction rate securities on Novell’s performance.

Software maker Novell has reported financial results for its fiscal fourth quarter of 2008 ending October 31, and the meager profits that the reorganized company was able to eek out were mostly wiped out by an impairment charge related to its investment in auction rate securities. ARSes, for short.

There is additional information about ARS right here.

More Reports

A lot of the coverage was boring repetition of the press release with no fundamental analysis or insight. It’s not helpful and it creates an empire of ‘yes men’ where the naked emperor can never be ridiculed. As a famous saying goes, “truth is treason in the empire of lies.”

As the Boston Herald put it:

Waltham software maker Novell posted a quarterly loss of $16.3 million after writing down the value of auction-rate securities.

This is the bottom line really.

The results are also covered in:

Previously we also covered or cited:

Conclusion

We have already summed up these results some days ago. Having digested all this newer information, it seems safe to say once again that Novell disappoints but only in alignment with the rest of industry, which suffers considerable slowdown (if not another great depression).

Those who are optimistic and bullish about Novell (or GNU/Linux) typically point out Linux growth, but that remains a small portion that cannot compensate for Novell’s overall demise. Novell continues to rely on a financial lifeline (coupons and referrals) from Microsoft.

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A Single Comment

  1. G. Michaels said,

    December 7, 2008 at 5:24 pm

    Gravatar

    As Alan Lord correctly points out in the comment, “you have to ask yourself how much of that Linux number are “real” sales and how much is Microsoft’s pocket money?”

    Uh-oh. Readers should be careful with this type of “see, the comments there support my position” assertion. One of Roy’s close collaborators and friends (William H. Hill, a.k.a ‘twitter’) is a notorious Slashdot troll that maintains more than a dozen accounts used to shill, disrupt and game the website, including the submission system.

    For fresh evidence, see the thread here. Consider that both the ‘gnutoo’ and ‘InTheLoo’ accounts are owned by the same person, and the last ‘OMG OMG’ anonymous post is also his (anonymous comments are more visible at a default score of zero than the ones posted by him with any of his 14 accounts at -1, which is the result of negative moderation).

    Note: writer of this comment adds absolutely nothing but stalking and personal attacks against readers, as documented here.

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