Bonum Certa Men Certa

First Albany Likes Microvell

Apparently, the news that 16,000 stay out of court free coupons had already been distributed to three large corporations has led Mark Murphy from First Albany to change his outlook on NOVL from neutral to buy.

Murphy wrote, "The news of the activation of over 16,000 certificates translates into roughly $11M in revenue." That may only be the start, though. He adds: "We believe it is becoming increasingly likely that NOVL could widely exceed the $4M-$7M built into its plan for FY07 for MSFT-driven transactions. Industry contacts also indicate that Novell will likely show additional SLES certificates being activated this quarter, beyond the 16,000 certificates that have already been announced. On that basis, the bogey of 70,000 coupons per year begins to look like a very low bar."

First Albany didn't see this coming. "When the MSFT agreement was announced, we believe the common view was that NOVL would receive a slug of cash and that was the whole extent of it, because very few customers were likely to activate the coupons," continued Murphy. "In that pessimistic scenario, there would be no meaningful impact to NOVL's P&L [profit & loss] during the next 12 months; after which NOVL would begin to recognize meaningless, empty one-time revenue events as the coupons expired without any true customer deployment of the SLES technology. As time passes and the Street learns more about the arrangement, we believe it will become more apparent that customers are implementing the SLES technology as they accept MSFT-sponsored coupons."

The problem is, these were existing customers that "activated" coupons, (no one ever said anything about new deployments and Microsoft has asserted that they lost no seats in the transactions), and there is no reason to believe that these same customers won't get their IP indemnification, i mean support, coupon from Microsoft for the next four years as well.

Microsoft already paid for these subscriptions, and these companies already were customers apparently, so how exactly would the "activation" of these already purchased coupons increase Novell's revenue a second time?

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