ARSes crush Novell profits

Could be worse

By Timothy Prickett Morgan • Get more from this author

Posted in Financial News, 4th December 2008 23:54 GMT

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Software maker Novell has reported financial results for its fiscal fourth quarter of 2008 ending October 31, and the meager profits that the reorganized company was able to eek out were mostly wiped out by an impairment charge related to its investment in auction rate securities. ARSes, for short.

Sales in the quarter came to $244.7m, down a smidgen and just a few million bucks shy of Wall Street's expectations. The net loss in the quarter came to $16.3m, but that included a $14m charge for the ARS impairment.

These ARS investment instruments are the same ones that left municipalities and states across America flat-footed in February of this year when people figured out that ARSes are only as good as cash so long people are willing to buy and sell them.

All things considered, Novell did pretty well in the quarter, but showed some softness in its services biz. Software license sales were up a fraction of a percent to $51.4m, while maintenance and subscriptions (the latter mostly for open source products, and mostly relating to SUSE Linux) rose by 7.9 per cent to $158.8m. The services business - which includes tech support, training, and other professional services - had a decline of 26.1 per cent to $34.6m.

Dana Russell, Novell's chief financial officer, said in a conference call after Wall Street shut down for the day that Linux invoicing in the quarter was $46m, up only 2 per cent. He added that the deal with Microsoft, which allows the Windows maker to distribute SUSE Linux to customers, helped invoicing in prior quarters but that starting in early fiscal 2010, these hybrid Windows-Linux shops could start kicking in again as their contracts (which were mostly for three year licenses and which were signed largely in 2007) come up for renewal.

In terms of Novell's future, the Open Platform division, which includes SUSE Linux and other open source products that are distributed under a subscription model, sales rose by 36.1 per cent to $35.8m, and $30.5m of that was for Linux. Of course, Novell still sells NetWare (but less and less of it) and the hybrid Linux-NetWare lovechild called Open Enterprise Server. These NetWare-ish products and related GroupWise and a bunch of other software are lumped together into the Workgroup division.

In the fiscal fourth quarter, NetWare and OES sales fell by 4.3 per cent to $54.6m and collaboration software sales rose by 3.3 per cent to $29.4m. Adding in all the other stuff, the Workgroup division had sales of $91.9m, down 5.8 per cent because that other software took a big hit.

Identity and security management reported sales of $37.3m in fiscal Q4, up 6.4 percent. Systems and resource management, which has been bolstered by Novell's $205m acquisition of virtualization management specialist PlateSpin earlier this year, reported $45.1m in sales, up 15.3 per cent, thanks to PlateSpin.

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