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Attachmate acquisition stalls Novell's Q1

Don't blame SUSE Linux

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Novell is in the process of being eaten by Attachmate and having some juicy patents sold off to a holding company controlled by Microsoft, Apple EMC, and Oracle. And the company's top brass took a zero for the day and didn't face Wall Street when Novell announced its financial results for the first quarter of fiscal 2011 ended in January.

And for good reason. Novell's executives, who are back in the company's Waltham, Massachusetts offices, don't want to do anything to put the kibosh on the $2.2bn Attachmate acquisition, which was approved by Novell shareholders three weeks ago. Ron Hovsepian, president and chief executive officer at Novell, and the other top execs and techs of the company don't want to do anything that might upset the Attachmate-Microsoft apple cart.

To get the deal done, Attachmate needs to sell 880 patents to CPTN Holdings, the Microsoft-sponsored holding company, for $450m; it also needs for Novell to not spend one red cent of that $1.1bn in cash it has in the bank. Net-net, Attachmate can get ahold of Novell for around $707m, which is looking like a little less than one year of revenues at Novell's current run rate.

None of the executives at Novell were even quoted in the press release and Novell did not make any effort to notify anyone that it was reporting its financials.

In the quarter ended January 31, all of Novell's businesses were down. The company had $20.4m in software license sales, down 3.8 per cent compared to the year-ago period. Maintenance and subscription revenues dropped 5.4 per cent, to $150.4m, which services sales were off 10.3 per cent, to $19.9m. All told, Novell's sales fell 5.8 per cent in fiscal Q1, to $190.7m.

Starting a few quarters ago, Novell lumped together operating systems, management, and security tools into one category. In fiscal Q1, this group of products accounted for $12.7m in licenses, $14.4m in services, and $93.3m in maintenance and subscription fees, for a total of $120.4m. Maintenance and subscription revenues were flat year on year, but new license sales in this group of products fell by 32.9 per cent to $12.7m.

Services revenues for these three areas fell by 10.5 per cent, to $14.4m. This area, which includes SUSE Linux, had a loss from operations of $409,000, a shift from an operating profit of $411,000 in the year ago period. Linux maintenance and subscription revenues actually rose by nearly a point, to $37.8m, in the quarter. So don't blame SUSE Linux. Then again, Red Hat was be able to grow at 20 per cent per quarter, even during the economic downturn in 2008 and 2009, so maybe the lack of SUSE Linux growth is a problem.

Novell's other product category is collaboration solutions, which lumps together NetWare, Open Enterprise Server (a hybrid Linux-Netware OS), and GroupWise collaboration tools. This unit had $7.7m in software license sales in Q1 of fiscal 2011, also flat, and maintenance and subscription revenues for these productrs added up to $57.1m, down 10.5 per cent.

Novell has been converting short-term investments into cash, presumably to make the Attachmate deal work, and sold off $291.1m in investments in Q1. This had tax consequences, of course, nearly quadrupling the company's taxes to $33.5m. Even before the taxes, Novell's income from operations was down 46.1 per cent in the quarter, but after all the numbers were added up and the taxes were paid for net income and investment sales, Novell swung to a $17.9m loss, compared to a $20.2m profit in Q1 of fiscal 2010.

Novell ended the quarter with $981.4m in cash and $150m in short-term investments. Together, this cashish pile was about the same as at the end of fiscal Q4 of 2010. The company's deferred revenue (both short and long term) took some hits in the quarter, and added together, amounted to $592.8m, down 8.9 per cent sequentially from the October 2010 quarter. ®

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