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Digesting Novell financials

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It's a perennial question, "why would anyone use Novell any more?" Typically coming from people who only know Novell as "That NetWare company," or perhaps, "the company that we replaced with Exchange." These are the same people who are convinced Novell is a dying company who just doesn't know it yet.

Yeah, well. Wrong. Novell managed to turn the corner and wean themselves off of the NetWare cash-cow. Take the last quarterly statement, which you can read in full glory here. I'm going to excerpt some bits, but it'll get long. First off, their description of their market segments. I'll try to include relevant products where I know them.

We are organized into four business unit segments, which are Open Platform Solutions, Identity and Security Management, Systems and Resource Management, and Workgroup. Below is a brief update on the revenue results for the second quarter and first six months of fiscal 2009 for each of our business unit segments:



Within our Open Platform Solutions business unit segment, Linux and open source products remain an important growth business. We are using our Open Platform Solutions business segment as a platform for acquiring new customers to which we can sell our other complementary cross-platform identity and management products and services. Revenue from our Linux Platform Products category within our Open Platform Solutions business unit segment increased 25% in the second quarter of fiscal 2009 compared to the prior year period. This product revenue increase was partially offset by lower services revenue of 11%, such that total revenue from our Open Platform Solutions business unit segment increased 18% in the second quarter of fiscal 2009 compared to the prior year period.

Revenue from our Linux Platform Products category within our Open Platform Solutions business unit segment increased 24% in the first six months of fiscal 2009 compared to the prior year period. This product revenue increase was partially offset by lower services revenue of 17%, such that total revenue from our Open Platform Solutions business unit segment increased 15% in the first six months of fiscal 2009 compared to the prior year period.

[sysadmin1138: Products include: SLES/SLED]



Our Identity and Security Management business unit segment offers products that we believe deliver a complete, integrated solution in the areas of security, compliance, and governance issues. Within this segment, revenue from our Identity, Access and Compliance Management products increased 2% in the second quarter of fiscal 2009 compared to the prior year period. In addition, services revenue was lower by 45%, such that total revenue from our Identity and Security Management business unit segment decreased 16% in the second quarter of fiscal 2009 compared to the prior year period.

Revenue from our Identity, Access and Compliance Management products decreased 3% in the first six months of fiscal 2009 compared to the prior year period. In addition, services revenue was lower by 40%, such that total revenue from our Identity and Security Management business unit segment decreased 18% in the first six months of fiscal 2009 compared to the prior year period.

[sysadmin1138: Products include: IDM, Sentinal, ZenNAC, ZenEndPointSecurity]



Our Systems and Resource Management business unit segment strategy is to provide a complete “desktop to data center” offering, with virtualization for both Linux and mixed-source environments. Systems and Resource Management product revenue decreased 2% in the second quarter of fiscal 2009 compared to the prior year period. In addition, services revenue was lower by 10%, such that total revenue from our Systems and Resource Management business unit segment decreased 3% in the second quarter of fiscal 2009 compared to the prior year period. In the second quarter of fiscal 2009, total business unit segment revenue was higher by 8%, compared to the prior year period, as a result of our acquisitions of Managed Object Solutions, Inc. (“Managed Objects”) which we acquired on November 13, 2008 and PlateSpin Ltd. (“PlateSpin”) which we acquired on March 26, 2008.

Systems and Resource Management product revenue increased 3% in the first six months of fiscal 2009 compared to the prior year period. The total product revenue increase was partially offset by lower services revenue of 14% in the first six months of fiscal 2009 compared to the prior year period. Total revenue from our Systems and Resource Management business unit segment increased 1% in the first six months of fiscal 2009 compared to the prior year period. In the first six months of fiscal 2009 total business unit segment revenue was higher by 12% compared to the prior year period as a result of our Managed Objects and PlateSpin acquisitions.

[sysadmin1138: Products include: The rest of the ZEN suite, PlateSpin]



Our Workgroup business unit segment is an important source of cash flow and provides us with the potential opportunity to sell additional products and services. Our revenue from Workgroup products decreased 14% in the second quarter of fiscal 2009 compared to the prior year period. In addition, services revenue was lower by 39%, such that total revenue from our Workgroup business unit segment decreased 17% in the second quarter of fiscal 2009 compared to the prior year period.

Our revenue from Workgroup products decreased 12% in the first six months of fiscal 2009 compared to the prior year period. In addition, services revenue was lower by 39%, such that total revenue from our Workgroup business unit segment decreased 15% in the first six months of fiscal 2009 compared to the prior year period.

[sysadmin1138: Products include: Open Enterprise Server, GroupWise, Novell Teaming+Conferencing,

The reduction in 'services' revenue is, I believe, a reflection in a decreased willingness for companies to pay Novell for consulting services. Also, Novell has changed how they advertise their consulting services which seems to also have had an impact. That's the economy for you. The raw numbers:


Three months ended


April 30, 2009

April 30, 2008

(In thousands)


Net revenue
Gross
profit


Operating
income (loss)


Net revenue
Gross
profit


Operating
income (loss)

Open Platform Solutions


$ 44,112
$ 34,756

$ 21,451

$ 37,516
$ 26,702

$ 12,191

Identity and Security Management



38,846

27,559


18,306


46,299

24,226


12,920

Systems and Resource Management



45,354

37,522


26,562


46,769

39,356


30,503

Workgroup



87,283

73,882


65,137


105,082

87,101


77,849

Common unallocated operating costs





(3,406 )

(113,832 )



(2,186 )

(131,796 )























Total per statements of operations


$ 215,595
$ 170,313

$ 17,624

$ 235,666
$ 175,199

$ 1,667



























Six months ended


April 30, 2009

April 30, 2008

(In thousands)


Net revenue
Gross
profit


Operating
income (loss)


Net revenue
Gross
profit


Operating
income (loss)

Open Platform Solutions


$ 85,574
$ 68,525

$ 40,921

$ 74,315
$ 52,491

$ 24,059

Identity and Security Management



76,832

52,951


35,362


93,329

52,081


29,316

Systems and Resource Management



90,757

74,789


52,490


90,108

74,847


58,176

Workgroup



177,303

149,093


131,435


208,840

173,440


155,655

Common unallocated operating costs





(7,071 )

(228,940 )



(4,675 )

(257,058 )























Total per statements of operations


$ 430,466
$ 338,287

$ 31,268

$ 466,592
$ 348,184

$ 10,148

So, yes. Novell is making money, even in this economy. Not lots, but at least they're in the black. Their biggest growth area is Linux, which is making up for deficits in other areas of the company. Especially the sinking 'Workgroup' area. Once upon a time, "Workgroup," constituted over 90% of Novell revenue.
Revenue from our Workgroup segment decreased in the first six months of fiscal 2009 compared to the prior year period primarily from lower combined OES and NetWare-related revenue of $13.7 million, lower services revenue of $10.5 million and lower Collaboration product revenue of $6.3 million. Invoicing for the combined OES and NetWare-related products decreased 25% in the first six months of fiscal 2009 compared to the prior year period. Product invoicing for the Workgroup segment decreased 21% in the first six months of fiscal 2009 compared to the prior year period.
Which is to say, companies dropping OES/NetWare constituted the large majority of the losses in the Workgroup segment. Yet that loss was almost wholly made up by gains in other areas. So yes, Novell has turned the corner.

Another thing to note in the section about Linux:
The invoicing decrease in the first six months of 2009 reflects the results of the first quarter of fiscal 2009 when we did not sign any large deals, many of which have historically been fulfilled by SUSE Linux Enterprise Server (“SLES”) certificates delivered through Microsoft.
Which is pretty clear evidence that Microsoft is driving a lot of Novell's Operating System sales these days. That's quite a reversal, and a sign that Microsoft is officially more comfortable with this Linux thing.
It has been mentioned many places, and I've done some of the mentioning, that since openSUSE is the foundation for SLED, it makes sense for Novell to distribute an NCL for openSUSE. It turns out they're working on just that. And here is the Novell beta page. I'm soooo going to try this out, since I'm running openSUSE 10.3 on my work desktop and won't be moving to openSUSE 11 until I can run the client on it (oh, wait, I can).

It should also be mentioned that Ubuntu is a very frequently requested target for another NCL, but I have reason to believe that'll never happen. First of all, any Novell Client involves closed source 3rd party licensed code, which makes it hard to port to Linux in the first place (a relic of being based on code from the days when open-source was just an ethical standpoint rather than a tangible market force). Second, Novell has proven to be rather light in developer resources in certain areas, and linux integration with non-SUSE linux distros is very minimal.

Problem with SLES10-SP2

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Just this morning Novell posted a new TID:

Updates catalogs missing after updating libzypp

I've heard on the grape-vine that this particular libzypp update was put into the SLES10-SP1 channel in order to prepare for SP2's release. Those fine folk out there that have turned on Auto Updating on their SLE[S|D] boxes have very probably already been bit by it. I hope Novell gets this one fixed, and posts recovery steps, soon.
An interesting thing has shown up on the Novell Wiki. Someone has been posting procedures to install Suse Linux Enterprise Desktop 10.

Take a look for yourself.

This is a document in progress, so take it for what you will. But still, interesting!

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