12.14.07

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What Novell’s Financial Performance Means for Its Future

Posted in Finance, Microsoft, Novell, SCO at 8:28 pm by Dr. Roy Schestowitz

Here is a quick point-by-point roundup of the effects Novell's results are likely to have.

Buybacks

This report comes from CNN. Friday didn’t treat Novell any better than Thursday.

Shares of Novell fell Friday morning after the business software developer swung to a fourth-quarter loss, partly because of the sale of a consulting unit.

Shares shed 25 cents, or 8.5 percent, to $6.85 after the opening bell.

[...]

“After a year of solid improvement across a number of fronts, we believe Novell (NOVL) needs to augment its progress by using part of its $1.3 billion in net cash for a buyback program, which would help accelerate earnings per share growth into 2008-2009 and create a support level for the shares,” Materne said in a client note.

We mentioned buybacks on several occasions before, the context being Microsoft, Novell, and SCO [1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11]. Buybacks are of course a sign of weakness, no matter how companies want to characterise (spin) them.

Where is the UBS analyst who enthusiastically predicted growth? Analysts are paid to say what the companies which hire them want to be said.

Overhaul

The restructuring costs at Novell are yet to take effect.

Novell (NOVL 7.10) reported better than expected results for the fourth quarter; however, the business software maker also issued tepid guidance and said it expects to incur additional costs from its ongoing restructuring efforts, sending shares more than 9% lower in pre-market activity.

Layoff Costs

Here is the article from the ‘local’ press:

Layoff costs spur loss for Novell in fourth quarter

The job custs are part of a plant to improve profitability by moving work to less expensive countries such as India and selling more products over the phone and Internet.
Novell said revenue this coming year will miss estimates because it is shifting some consuting work to partners.

There are quite a few typos in this article. Maybe they are just as sloppy as myself (poor habits of proofreading).

Savings and Debts

Motley Fool, which is affiliated with Microsoft, has this to say about Novell:

Novell has amassed enough cash that you start to wonder what it plans to do with the riches. But don’t expect it to pay back debt any time soon; Novell made $23 million off its investments this quarter, and those senior debentures with a low, low 0.5% coupon rate don’t mature for another 17 years.

Don’t forget about Novell's ongoing (and prior) financial troubles.

Microsoft Dependency

Several months ago, when Novell filed its redacted disclosure, Larry Dignan concluded that Novell had become Microsoft dependent. Nothing has changed since. Here is the latest from Larry:

To be sure, Novell is still dependent on Microsoft. A year into Novell’s five-year agreement with Microsoft, the company has invoiced more than half of the $240 million deal. Novell has added 4,700 customers in the last year.

Chances of Novell escaping this deal with Microsoft are growing smaller by the day. Novell can, in some sense, be seen as Microsoft subsidiary.

Microsoft (SUSE) Coupons

In LinuxInsider, Novell’s rise in sales is rightly described as “initial”. It’s all about the coupons, which are bound to run out.

“The Microsoft deal provided an initial boost to Novell’s Linux sales, but what’s going to allow it to position itself as a credible alternative to Red Hat is internal execution and a sharper focus,” Tillman said.

Novell has been comparing its current quarters to previous quarters that predate the Microsoft deal. The next bunch of quarterly reports will therefore be particularly interesting to watch.

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