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Novell delivers another mediocre Q3

Like clockwork

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You have to hand it to Novell for being consistent. The shrinking software maker has once again posted lackluster financial results - this time during its third quarter.

Novell's third quarter revenue dipped 4 per cent to $241m. Only $12m of that total came from Linux-related sales, marking yet another quarter when Novell's promising new businesses didn't come close to offsetting declining Open Enterprise Server and Netware sales. Revenue for the latter two products fell 19 per cent year-over-year.

On the plus side, Novell's profit increased to $11.6m, or 3 cents a share, from $2.1m or break-even last year.

On the more negative side, Novell revealed that it has kicked off an internal investigation into how it has handled stock-based compensation. For that reason, Novell has characterized its third quarter figures as "preliminary" results.

"The financial results reported today do not take into account any adjustments that may be required in connection with the completion of the stock-based compensation review and should be considered preliminary until Novell files its Form 10-Q for the third fiscal quarter ended July 31, 2006," Novell said.

A couple months into his run as CEO, Ron Hovsepian put a sweet spin on the quarter.

"Novell's focus on execution and acceleration of our strategy resulted in continued strong growth in Linux and Identity revenues," Hovsepian said. "The launch of SUSE Linux Enterprise 10 and the rollout of a new marketing campaign earlier this month has generated widespread customer and partner enthusiasm, and we are aggressively moving to drive adoption of the new platform."

Linux sales rose 30 per cent year-over-year and Identity and Access Management sales jumped 46 per cent to $26m. Despite such gains, Novell's Linux business continues to look rather hapless, particularly when compared against Red Hat's subscription biz that brings in close to $80m per quarter.

Novell is looking for fourth quarter revenue between $246m and $256m - well below the analysts' consensus estimate of $261m. ®

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