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Novell's Financial Hocus Pocus: How Poorly is It Really Doing? (Updated)

"Novell is dying," concludes one man

One issue worth exploring is future prospects of Novell. The company is still in a state of gradual transition.



There are 12 of us at the moment in the IRC channel ( #boycottnovell @ FreeNode ), which has just been formally registered. One subject that was willingly brought up is Novell's latest financial report, which we mentioned a couple of times last week [1, 2].

Here is last year's annual report (published in December 2007) and the corresponding document on the SEC's Web site. Also consider this quick analysis, which basically showed us that Novell pays Microsoft for SUSE sales that it makes, based on volume. Here are some notes about the report from March 2008 and here is the latest report, or at least a synopsis (truncated documented). The full report can be found and read here (free registration required).

Beneath the surface you already find some similar responses to ours, e.g. from LinuxToday:

I'd love to know how Novell is going to replace several hundred million dollars of revenue around Netware, which Microsoft is systematically having for lunch, with a pitiful thirty million dollar Linux business that Red Hat wouldn't get out of bed for. You do the math.

Personally, I seriously doubt the revenue increase claims, because Novell's Linux business has been treading water around that figure for a few years now. Any revenue increase on such a small figure when compared with their historical Netware revenues (which they have to replace), and those of other companies Novell thinks it competes with, such as Red Hat, are just insignificant.


Further, it says:

Microsoft is not a partner [of Novell]. It's a very direct competitor, and the reason why Novell went cap in hand to Microsoft is because they can't compete, they don't have any idea of the first thing to do to try and compete and they simply want Microsoft to stop taking them to the cleaners. This was all they could come up with to make it stop.


Another person takes a look at the hard numbers

Looking at the "Total net revenue"

2008 - $235,666 2007 - $232,387

Which is good. It is an increase. But it's an increase of: $3,279.

Now, the claim is: 29 = x + .31x 29 = 1.31x 22 = x (approx)

So Novell's Linux segment earned $7 million MORE than last year ...

And every other segment is doing good, too ...

But the total increase is LESS than the increase of Novell's Linux segment.

Which really doesn't make any sense. In order for the total to be less than one of the segments, at least one of the OTHER segments has to be doing worse than last year.

[...]


Someone later jumped in to defend Novell, but the argument backfired because it did not correspond to simple facts.

Yes. And unlike you, I know what "Workgroup product" means. That's NetWare. Their largest revenue stream is dying.

So a 1% loss in NetWare almost completely offsets a 31% gain in SuSE.

Novell needs to get customers for their Linux product as fast or faster than they lose them from NetWare. And Novell is not doing this.

[...]

If Novell is not gaining market share, then Novell is doing nothing more than milking existing customers.

At best that means that Novell is stagnant.

Otherwise, it means that Novell is dying.

Novell is dying.


Going back to the start, it was Asay who generated the buzz about Novell doing well (a claim backed by Novell's embellished reports). Looking at his own blog last night, you find this. Given the growth he has been boasting for a long time and also the audiocast where he said that everyone plays the 'bucket game' (including Novell), this just doesn't seem right.

Update (03/06/2008): This one comes from a notorious author, but it sheds some more light.

Novell made $5.87 million, or two cents a share, in its second fiscal quarter ended April 30 on flat revenues of $235.7 million, up only ~$3 million. A year ago it lost $2.9 million, down a penny.

Legal and R&D cost it $4.5 million.

On a non-GAAP basis, income from operations for the second fiscal quarter 2008 was $16 million versus $9 million last year.

The company’s product revenue from Open Platform Solutions, almost all of it Linux, came to $30 million, up 31%.

Service revenues were down 19% to $41.1 million.

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