Novell still looks like the little engine that can't after reporting a drop in third quarter revenue and income.

The software maker posted revenue of $290m - down from $305m in the same period last year. Not good. Add to that a stunning fall in net income to $2m from $24m in last year's third quarter, and the company's financials fail to inspire.

Novell, however, continued to celebrate its Linux business in light of the lackluster results.

"Customers continue to embrace Novell's Linux and identity solutions," said Jack Messman, CEO of Novell. "We were particularly pleased with our initial penetration of the Chinese market where Linux is an attractive technology for government and commercial users. . . . While we were profitable this quarter, we still have improvements to make in our business which will lead to cost reductions." During the third quarter, Novell pulled in $44m from Linux-releated sales, including $31m off Open Enterprise Server and $8m off subscriptions to SuSE Linux Enterprise Server (SLES). Subscriptions to SLES hit 28,000 over the three months. Hardly the stuff dreams are made of.

In the same period last year, Novell reported Linux revenue of $12m on the back of 19,000 sales of SLES.

Shareholders ignored Novell's more than 90 per cent year-over-year profit drop to send shares 3 per cent higher during Friday's trading. ®