Novell Posts $16 Million Loss in Midst of Linux Transition

Novell yesterday reported a US$16 million quarterly loss. Executives blamed restructuring costs for the losses.

For the second quarter, Novell reported revenues of $297 million, compared to revenues of $294 million for the second fiscal quarter of 2004. This quarter’s $16 million loss compares to a $15 million loss in the year-ago period.

The company posted $6 million in restructuring and acquired in-process research and development expenses, $1 million of long-term investment impairments and a net $11 million for income taxes related to non-GAAP adjustments.

“Our results this quarter reflect the significant investments we are making to reposition Novell,” said Jack Messman, chairman and CEO of Novell. “I am confident that these investments will lead to increased customer acceptance of our solid solution offerings in the Linux and identity driven computing segments.”

Shrinking Netware Space

Stacey Quandt, senior business analyst, Open Source Practice Leader at the Robert Frances Group, told LinuxInsider that she is not surprised by the results. She said Novell clearly was not able to compensate for its shrinking Netware install bases.

“There are multiple challenges for Novell in the Linux space. First, the Novell Linux solution is not the only one on the market. Red Hat has a brand identification, especially in North America and other English speaking countries,” Quandt said. “Also, most ISVs’ first port to Linux is Red Hat. So another challenge could be an issue of application availability.”

The Silver Lining

There is some good news for Novell, too, however. During the second fiscal quarter 2005, the company recognized revenue of $8 million from subscriptions to SuSE Enterprise Server (SLES).

Sales of subscriptions to SuSE Linux Enterprise Server totaled 19,000 units in the quarter.

Novell executives are committed to making the Linux transition. Part of that meant the recent acquisition of Immunix, a provider of host-based application security solutions for Linux.

Immunix developed AppArmor to help businesses protect the open-source operating system and applications from internal attacks, viruses, and malicious applications.

“The Immunix acquisition is the silver lining,” Quandt said. “I would anticipate that the acquisition of Immunix will help Novel further differentiate its Linux strategy from Red Hat.”

The company did not issue an earnings outlook. Novell’s shares fell nearly 7 percent after the earnings reports hit the street.

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