Financial Games: Novell's Main Strength?

Dr. Roy Schestowitz

2008-05-30 17:43:04 UTC
Modified: 2008-05-30 17:43:04 UTC

Lots of companies do this, but it's no excuse

This issue is one that we wrote about earlier today. Critically, we also wrote about the buybacks earlier this month, along with head-changes, offshoring, etc.

“Novell embellishes its case and offers a fantastic story because investors sometimes enjoy good news more than honesty.”Things are not going too well at Novell, but like most companies -- no matter the circumstances -- it manages to deceive the press. Novell embellishes its case and offers a fantastic story because investors sometimes enjoy good news more than honesty. Let's just pretend that the massive looming layoffs are non existent, okay?

To repeat the gist of this story, Novell cut off 10% of its staff last year [1] (more axing to come soon) and it counts as "Linux sales" transitions from its old O/S/es to GNU/Linux [2] (e.g. OES). In other words, Novell is seems to be cooking the books and innocent folks like Matt Asay are buying it, much like the rest of the mainstream press. You can spot sheep when you see the likes of the Wool Street Journal promoting the blue- and white-collar chaps (blue chips for white sheep).

Novell is a partner of Microsoft now [3], so wanting it to succeed would be risky. In fact, relying on it would be risky too.

References below are from yesterday's news alone. ⬆ ____

[1] Novell moves into black in 2d quarter

Chief executive Ron Hovsepian slashed about 10 percent of jobs last year and focused on new Linux products, seeking to counter a drop in revenue from older software. Sales of its Linux operating system rose 31 percent to $29 million last quarter.

[2] Novell financials beat estimates again

The company said it showed healthy growth in its core business units around the Linux operating system, identity/access management software and systems management tools.

[This confirms what was said earlier about layoffs and cannibalisation. Linux sales are the main thing the company really raves about with actual figures, implying that the rest isn't too good (not enough to harp about).]

[3] Foolish Forecast: Novell Swings for the Fences

Don't be fooled by the massive cash flow margins in 2007. It's a mirage, generated by a cross-licensing and cross-promotion agreement with Microsoft that landed Novell a one-time $348 million payment. Without it, the trailing free cash flow margins would have stayed positive but in the lower single digits.

Comments

David Flax

2008-05-30 18:54:26

We've been through this before. Why is any of this bad news? Changing heads is a normal course of business. Buying your own stock is not necessarily bad news and in this case it is good news since Novell is very cash heavy. Offshoring is common place these days as well. Cutting staff can be good depending on which divisions Novell is cutting staff from? Do you know which divisions Novell cut staff from? Is it possible that these staff cuts were to remove duplicate positions within the company? I don't know personally and maybe you do. Were they all developers?

You should get one thing straight, Novell does not include OES as part of it's Linux sales, OES is included in Workgroup sales which dropped 1% to 92 million. Maybe you know something investors don't know but a 37% increase in revenue is rarely a bad thing.
Roy Schestowitz

2008-05-30 19:21:11

According to this logic, David, if a company adds staff, keeps the same managers for ages (maybe an entire career), has investors buying its stock (thriving as a publicly-traded company) and keeps its jobs close to 'home' (paying generously to employees), then that does not say anything about the company's status.

As for OES, it wasn't an example that I was entirely certain about, but surely enough Novell is migrating old clients to GNU/Linux (in one form or another). That does not necessarily mean that it adds new clients.
David Flax

2008-05-30 19:40:00

Roy,

That's a stretch based on what I said. I said it is a normal course of business and not necessarily a bad thing. That certainly doesn't mean that keeping the same managers and paying your staff well is a bad thing, but many companies expect some turnover. People in general need new challenges. It is a rare person that stays with a company for their entire career. Has it happened sure, it's just not that common.

Yes Novell is trying to migrate clients to Linux either OES or Suse. You say it does not neccessarily mean they add new clients. It also could mean Novell did add new clients. You just don't know.
Roy Schestowitz

2008-05-30 19:48:02

That's true. Novell knows best, but it keeps the cards close to its chest and its important deal redacted.
David Flax

2008-05-30 19:59:48

I agree with you there. I would rather know more about the deal too.
Miles

2008-05-30 20:01:17

Novell seems to be putting more of an emphasis on Linux the last year or two and so I suspect that the job cuts have been in non-Linux areas. Ironically, the text that Roy has quoted in red even seem to suggest that ;-)

slashed about 10 percent of jobs last year and focused on new Linux products, seeking to counter a drop in revenue from older software.

it showed healthy growth in its core business units around the Linux operating system

Sounds like the cuts were in the aging proprietary software departments (e.g. NetWare?) since it'd be hard to focus on Linux if you are cutting Linux jobs. Plus we also know from reading various blog feeds, etc that Novell has been actively hiring in the Linux departments.
Roy Schestowitz

2008-05-30 20:21:20

Oh, of course Novell 'recruited' a lot of people for OpenSUSE. You know, to share the code to [sic] Novell and Microsoft.
Victor Soliz

2008-05-30 22:45:33

Enter Novell, a company that attributes its only success to being Microsoft's sidekick.

Financial Games: Novell's Main Strength?

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