Apparently, Novell is looking to make at least 2 more similar deals with "first tier vendors", this shifts the company's focus from directly marketing to small and medium sized businesses, and will allow them to pare down their sales force.

Novell hopes to sign at least one or two more partnerships with similar first-tier vendors as it reassigns and lays off direct salespeople, especially those not working on Global 2,000 corporate accounts, Hovsepian said.

In a conference call, Novell CEO Ron Hovsepian refused analysts suggestions to sell off some of the unprofitable software units, and continued to try to spin the recent Microvell partnership as having a positive impact on Novell's ability to do business, and insisting the community reaction is mixed rather than negative.

Hovsepian said the two companies started jointly marketing this month and noted that there are "several Linux deals that are accelerating due to the new partnership with Microsoft."

At this point, it is clear that Novell is completely dependent upon their new partners, with their financial projections for upcoming years seemingly completely tied to the Microvell deal and the anticipated spoils of the partnership:

The company said in a conference call that combined OES and NetWare revenues should continue to fall 15% to 20% year over year in fiscal 2007.

Novell predicts 2007 net revenue of between $945 million and $975 million. On a non-GAAP basis, adjusted income from operations is expected to be between break-even and $10 million.

That includes about $13 million Novell expects to receive in fiscal 2007 from the five-year, $68 million patent agreement with Microsoft for Novell's intellectual property, as well as between $4 million to $7 million in subscription revenue Novell hopes to earn from Microsoft customers who sign up for SUSE Linux subscriptions.

The marketing side of that deal is worth $240 million over five years. Novell hopes to book about $45 million from it in 2008.

So, if I understand that right, for 2007 they plan to come in between break even and $10M, as long as they reap at least $4M in subscription revenue from those Microsoft certificates, and the $13M from the patent cooperation agreement. That means, sans the deal, they would be projecting losses of at least $7M, no? (I am not a finance guy, can you tell?)

If Novell is so vulnerable, why didn't Microsoft just buy Novell out, rather than partner with them? Perhaps because a completely dependent Novell is preferable to none at all, and it wouldn't be the first time that Microsoft used a proxy to advance its agenda.