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How Much Did Novell Fool Wall Street This Time Around?

Net loss at $15 million, claims Novell

Novell may have already had financial trouble before. Then came the deal with Microsoft. In the previous fiscal quarter, Novell's financial issues were already impossible to hide, despite cooking its own books (Microsoft does this too by the way).



USS Towers - sinking



In more recent months, Novell began buying its own shares in order to keep up appearances just like Microsoft does [1, 2, 3, 4, 5, 6]. Yesterday's financial figures, however, reveal that Novell is unable to keep this up. Novell reported bigger losses.

Here is the press release from Novell (also available from The Earth Times, which might improve future retention in case the former link breaks).

Market Watch summaries thusly: "Novell posts widened third-quarter loss"

Network World (IDG) covered this too.

Novell Thursday posted a net income loss of $15 million for its fiscal third quarter fueled by a charge related to its “auction-rate securities.”


Here is a reminder of the fact that Novell has already slashed its staff to reduce expenses. Apparently, this was not enough for a turnaround.

Novell Inc., the second-largest US seller of Linux software, reported a wider third-quarter loss because of a charge related to investments.

The net loss of $15.1 million, or 4 cents a share, compared with a loss of $3.68 million, or 1 cent, a year earlier, Waltham-based Novell said.

Novell slashed about 10 percent of its workforce last year, moved costly consulting tasks to partner companies, and started selling more products online and over the phone. The company blamed the third-quarter loss on a $15 million impairment charge related to its auction-rate securities.


Fox News had this report.

Novell Inc. (NOVL) posted a widened fiscal third-quarter loss, citing a $15 million charge related to auction-rate securities. Waltham, Mass.-based Novell said its net loss in the period ended in July grew to $15.1 million, or 4 cents a share, from $3.7 million, or a penny a share in the same period a year earlier.


A long-time Microsoft talking point, Ivy Lessner, annonces that "Novell's Quarterly Loss Widens."

Same tune in Associated Press, which does not permit quoting. The Microsoft-obedient New York Times may have cherry-picked a Reuters article, which spins this news positively.

Like a few others, Eric Savitz, of the Microsoft-obedient Barron's, had his eyes on the forecasts before he finally reported without saying much. The effect on the stock was minor.

After hours, NOVL is unchanged at $6.01; the stock rose 10 cents in the regular session.


Street Insider has offered some coverage too.

Over at iTWire, just prior to Novell's disclosure of these latest results, Sam Varghese predicted trouble for Novell. A company which becomes so dependent on Microsoft cannot be in a healthy state of affairs.

The extension of the deal indicates one thing - all the money which has been pumped into Novell so far is not yielding the returns which either company hoped for and it is now time to further subsidise SUSE Linux.

Yes, subsidise SUSE Linux. That is the main game from Microsoft's perspective - the subsidising of a GNU/Linux distribution which Microsoft is slowly infiltrating and trying to control. All this talk about interoperability is so much window (pun intended) dressing.

[...]

As Novell is finding out, and will continue to discover, such deals are counter-productive to the bottom line.


Novell has already tried to diffuse several points of backlash [1, 2, 3]. Judging by the ratings of Sam's article, the the 'Novell squad', if it exists at all, might be working overtime.

Here is another new article from Server Watch.

Then remember that the company [Microsoft] isn't subsidizing SLES to all and sundry — only to customers (including potential ones.) If Microsoft can't stop them from moving some of their workloads to Linux, it can at least try to control them by herding them to a Linux from a company it has a strong relationship with. Since the two companies have agreed to collaborate on interoperability, and since Microsoft is paying Novell a quarter of what it's receiving for its Linux business, it's not a huge step to imagine Microsoft is calling the collaboration tune and Novell doing the dancing.

But Microsoft will also get something else of value from the deal: a better idea of what its customers are up to when it comes to Linux. After all, it must dearly like to have a clear understanding of the areas in which its customers are abandoning Windows for Linux, why they are doing so, how much it costs and the difficulties they face. It's a case of heeding the advice of Chinese military strategist Sun-tzu: "Keep your friends close and your enemies closer."

[...]

The deal has a darker side to it as well. Subsidies have a habit of distorting the market, and in this case it's Red Hat and other competitors to SLES that have to struggle against the advantage Microsoft's greenbacks give Novell. If Microsoft tries to use the knowledge it gains from customers to stifle the growth of Linux in the longer term then that's altogether more sinister.

Albeit not exactly surprising.


As far as the public if aware, more layoffs are on their way. Novell is meanwhile becoming more of a prime target for an attractive acquisition. It increasingly embraces Microsoft technologies. Yesterday we showed what Novell's CEO had said about Novell and Microsoft mixing and combining at a technical level. It's bound to triple in scale.

There are a few speculations out there about Sun Microsystems getting acquired. According to the following, Sun's FOSS assets could move to Novell, which would make sense for OpenOffice.org, but not for a crown jewel like Java (Novell is a .NET supporter).

HP and IBM would need to see certain mid-term and long-term value in whatever bits of Sun was left after they stripped out the poorly performing parts. IBM could take the open source stuff, like MySQL. It would have trouble taking the Open Solaris software stack on board and would surely regard the Solaris base as conversion material to AIX (less likely) or Linux (more likely). It might sell the open source part of Sun to Novell. The SPARC chip business would have to go, IBM already having PowerPC and not wanting another chip technology. Again Fujitsu is the obvious candidate.


The above is merely speculation, but it's also possible that Novell will be acquired. Its market cap is very low ($2.13 billion compared to $6.83 billion in Sun's case and $148.98 billion for Google) and it probably keeps dropping.

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