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 Channel Futures

Best Practices


Novell Numbers Still Don’t Add Up

  • Written by The VAR Guy 1
  • March 2, 2007

The VAR Guy thinks it’s time for Novell to change course. The company disappointed investors yet again this week by delivering weak financial results and a quarterly loss. As Reuters noted, Novell in every quarter for more than a year has either missed analysts’ targets, made disappointing forecasts or both. Ouch.

Still, Novell’s shrinkage problem isn’t universal. The company’s SuSE Linux business is growing—really fast. Quarterly Linux revenue grew 46% to $15 million, giving the product line an estimated $60 million annual run rate. Unfortunately that’s only about 7 percent of Novell’s annual revenue—which the company says will range from $945 million and $975 million. Translation: SuSE Linux sales just aren’t growing fast enough to offset plummeting NetWare sales.

Now here’s a rather extreme idea from The VAR Guy: Maybe Novell should steal a page from the dot-com days and spin SuSE Linux out as a tracking stock. The move would allow shareholders to see the company’s real growth business far more clearly. As for security and identity management, maybe it’s time for Novell to sell off those businesses in order to double-down on open source.

Much like Microsoft did with NT, SQL Server, Exchange Server and IIS in the 1990s, Novell should spend the next few years building a Linux applications stack rather than dabbling in security solutions.

Tags: Agents Cloud Service Providers MSPs VARs/SIs Best Practices

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19 comments

  1. Avatar Giedi Prime March 4, 2007 @ 4:16 am
    Reply

    You are completely off the mark. The Linux business gew 46% due to Microsoft’s coupons, not to real market growth. While RHT brought in 106M$ of linux revenues the past quarter, NOVL (including MSFT’s boost) brought in $15M.

    Suse is a dud, in financial terms at least. NOVL has $1BLN of revenues because of its older business, not because of Linux — and neither part is really working. A 5000-people, 1BLN$ revenue/year company with 1.8BLN$ in cash and short term investment trading at 2.1BLN$? Sounds like a breakup job waiting to happen, but not to go forward as you suggest, to end the line.

  2. Avatar The VAR Guy March 4, 2007 @ 6:26 am
    Reply

    Actually, I think we agree on numerous points in terms of too much revenue coming from legacy, shrinking businesses (NetWare, GroupWise, etc.). Novell is out of time and has to make a move.

    I think the SuSE business is doing better than you suggest, since Novell is realizing the Microsoft revenue over three years rather than immediately. However, all of my sources indicate that Red Hat has 80 percent of the North American Linux server market, compared to less than 10 percent for Novell. There’s even talk that Ubuntu AND Apple Mac OS X are outshipping Novell on the server.

  3. Avatar John Bailo March 9, 2007 @ 10:49 pm
    Reply

    I think Novell is executing its strategy perfectly. It’s a complicated meld of old and new, of Open and commercial, of applications and OS.

    As far as telling Novell what to do, I say “teacher, leave them kids alone”.

  4. joe joe March 9, 2007 @ 11:22 pm
    Reply

    John,

    What applications? Groupwise is dying. And they certainly don’t have a traditional applications suite (database, ERP, biz intelligence, etc.)

    They need to make a serious run at the open source applications space before the market consolidates around Red Hat. Perhaps open sourcing groupwise would restore interest in the email platform.

  5. Avatar Alex Christophe March 14, 2007 @ 7:47 pm
    Reply

    Hi,

    Interesting comments and article. It just is regrettable to see the evident lack of industry knowledge reflected in the article. The comments had to be off the mark.

    1- NetWare replacement is Open Enterprise Server not SLES. OES offers the NetWare services (eDirectory, iPrint, iFolder etc) on top of the NetWare OR Linux kernel.

    2- Microsoft “coupons” are at best 4 months old, they cannot explain or justify a trend, even in Disneyland.

    3- Novell investment in Identity Management and a transition to Linux as the core OS for their portfolio was a bold move indeed. We believe the transition period is over and with the right industry partners Novell can actually now position their technologies better than ever before. The Open Enterprise…haven’t you heard??

  6. joe joe March 14, 2007 @ 9:06 pm
    Reply

    Hi Alex,

    Your points are well made.

    At what point, however, will Novell’s top-line revenue and bottom-line profits begin to rise? When will the Linux, Identity management and other businesses be big enough to offset the older, shrinking businesses?

  7. Avatar Boycott Novell raquo; Novell Criticism Hits from Two Fronts March 15, 2007 @ 10:37 pm
    Reply

    […] VAR Guy and Matt Asay have some harsh words for Novell. The former says that Novell#8217;s numbers still don’t add up, and therefore they must rethink their strategy. The VAR Guy thinks it’s time for Novell to […]

  8. Avatar smith March 15, 2007 @ 11:43 pm
    Reply

    Forced to use Novell for the company I was with for almost a decade, here is what I think of Novell.

    The geniuses who created Netware no longer work for Novell and idiots are running the show. Why would I say this? A decade ago, Netware was the thing and no one could compare to it. Throughout that decade, Novell concentrates more on buggy new features than fixing current bugs. Many times a patch makes things worse. It’s to the point that you don’t patch Netware unless you have to. Patches can be 800 MB’s; you might as well call that a new release. Many times you have to patch a patch.
    Instead of fixing the bugs and improving their current products, Novell looks elsewhere for solutions. They’re losing Netware to Microsoft so they resort to Linux. When Java was the hottest thing, Novell added it to Netware (I don’t see any reason why Netware needed Java and now Novell has been moving away from it for some time). Mono is the hot topic so they buy it. Virtual Machine is the hot topic so they jump right into it. Their strategy is this, don’t fix or improve what you already have, just add the next hottest thing. When Exchange was the hottest thing, Novell bought Groupwise from Wordperfect.
    Their other strategy is, instead of improving or fixing what they already have, fight with other companies, i.e. Microsoft, Sun, and now they’re picking on Red Hat. Remember when Novell wanted to beat Microsoft in the market? Instead Microsoft kicked it’s butte in Novell’s market niche, the network operating system. See Red Hat has a clue, instead of wasting resources, time and money bickering with some proclaimed “enemy”, Red Hat improves and fixes what it already has. Notice how Red Hat doesn’t really get involved with Novell’s spats. Notice how Red Hat seeing that virtual machines are the future enter this market with caution, purpose, and direction. Novell just jumps rigth in before they are ready. Do you want to be the IT manager who spends a lot of money on this new hot thing from Novell only to find out it’s buggy? And based on experience Novell never fixes it, just moves on to the next hottest thing. Don’t believe me? I’ll give you an example, Novell jumped into Java and added it to Netware as I mentioned before. Java turned out to be slow and then there was the Microsoft Java and Sun Java lawsuit. Novell used java to replace it’s nwadmin and various other tools with a jave product called consoleone. To make a long story short, consoleone never lived up to replacing those other tools, instead Novell decide to move on using web-based solutions like tomcat and apache.
    Management doesn’t have a clue. 3rd party investors have to tell them how to get it together by divesting superfluous business entities. 1., 2., and 3., expound on this. I believed long ago that Novell should make Netware more web-based because then Microsoft couldn’t mess with them (like change the desktop operating system so Netware clients no longer worked). But what do I know, I’m just a network administrator and I thought of this when Novell was “experimenting with Java on Netware.” Now after late in the decade they finally move in this direction but how do they handle it? They resort to tomcat and apache, “because it’s the next hottest thing.” See if they had a clue, they would do some research and development and realize that they can get by without tomcat and reduce the amount of bugs and complexity they have in netware. Another clue that management doesn’t have it togther is when you read an article about how the majority of Novell’s staff are in Sales?

    Because of all of these issues, I knew SUSE would die when Novell bought it. Novell hasn’t died yet and I believe it will be a long while before they do, but only because of the strength of Linux and Microsoft’s money, not because of Novell’s added value.

  9. Avatar dcperspective March 16, 2007 @ 12:15 am
    Reply

    Enterprise management and the migration that Novell has pulled off (that’s right- they have pulled it off) is not a quarter by quarter path. Yes they are publicly traded, and yes the do need to be accountable to the shareholders, but no, changing direction now would foolish and short sighted.

    BTW- As Both a MS and Novell “Value Added Reseller” the agreement that they have in place is the most valuable weapon I can bring to the table. And more and more Enterprises see Linux as not a lower cost alternative and as it now is, a valid and proven solution, this partnership will continue to grow Novells revenues.

    One last note – OES, SLES, SLED, Identity Mangemen, Zenworks, and Virtual Solutions are the key places Novell needs to focus on.

  10. joe joe March 16, 2007 @ 12:24 am
    Reply

    DCPerspective: I disagree with your claim that “Novell has pulled off” the transition. However, I’m a blogger and long-time journalist … and you aparently are a VAR who actually makes money designing Novell-oriented solutions. In other words, it would be foolish for me to dismiss or underestimate your claims. Thanks for taking the time to post.
    -jp

  11. Avatar John J. Macey March 16, 2007 @ 12:48 am
    Reply

    Hi All,

    Good article, but I left Novell’s SuSE Linux offering a while back.

    Adler
    Phoenix, Arizona
    http://www.jjmacey.net

  12. Avatar Brad March 16, 2007 @ 1:17 am
    Reply

    Ubuntu outshipping SuSE in the server market? I know Ubuntu is all the latest rage, but I don’t see Corporations running Ubuntu over RH or SuSE. At least not in the near term.

  13. Avatar dcperspective March 16, 2007 @ 1:19 am
    Reply

    OK, I’ll admit in the eyes of the geneal public they have not pulled it of entirely. But I have quite a few clients that are crrently running sled on their “lower need” desktops to test it for further deployment, and just as many OES and SLES servers out there as Microsoft. They have not captured the market but they have indeed created va,id and viable solutions where there were none in just a few years.

    Identity manager and Zenworks w/ AD is the drip that will slowly become a river.

    Keep up the good work.

    PS- posted from SLED BTW:-)

  14. Avatar Phasor Burn raquo; Blog Archive raquo; You can#8217;t leave March 16, 2007 @ 9:10 pm
    Reply

    […] still dissapointed in the being obsessed over the Novell/Microsoft deal. Get over it, Novell has signed their death warrant and will pay the piper soon enough. Microsoft is also on the decline and they just don#8217;t know it yet, probably won#8217;t know […]

  15. Avatar Thoreau March 19, 2007 @ 8:03 am
    Reply

    I don’t know about Novell’s netware strategy. It should have been a corpse 10 years ago, but has lingered. Their Suse strategy is right on target. They are lacking in a few enterprise pieces to Suse, but are working on what the lack as of this moment. What I can tell you, that the numbers don’t, is that the top fortune 500 companies are migrating- right now- to Suse. Redhat is too expensive. It doesn’t scale because of the cost. Suse is 1/4 of redhat in terms of server seats- on a bad day.

    It will take time for you armchair quartebacks to figure out whats happening. I’m telling you that now, this very day, Suse is being deployed for the companies of the richest people on the planet.

    The loss you see above are the death throws of netware. Who cares. Businesses don’t base their infrastructure on how much money Cisco or Microsoft made this year. If you base your business on how much your vendor is screwing you, you need to have your head examined.

    The right tool for the job. That’s all it is, and if you actually worked as a Linux admin in this secotr you wouldn’t be confused in the slightest. I don’t care if Novell had a good quarter or not. When Linux sales flatline, then that’s cause for concern. The rest can burn for all I care. It has nothing to do with the future of business IT.

  16. Avatar smith March 19, 2007 @ 9:44 pm
    Reply

    I believe that SUSE is their best strategy. It’s too bad that Novell management will screw it up.

    I think everyone here has no doubt the netware is dying. If Novell can’t get netware right, what makes you think they will get SUSE right? Remember, netware was the best in its market until it got beat by Microsoft. Why did Novell get beat when it had the best product around? Management screw up’s and lack of direction.

    Someone here implied that all SUSE needs is a few improvements to be really great. Based off past experience, Netware would be really great if Novell could fix what’s wrong with it.

  17. Avatar Alex April 25, 2007 @ 1:55 pm
    Reply

    Thank You

  18. Avatar TechIQ raquo; Archive raquo; Will the Real Novell Please Sta April 26, 2007 @ 5:58 pm
    Reply

    […] really? Is this the same Novell that in every quarter for more than a year either missed analysts#8217; targets or made […]

  19. Avatar TechIQ raquo; Archive raquo; Novell Finally Makes Move Worth August 13, 2007 @ 1:29 pm
    Reply

    […] Still, Novell continues to face an uphill battle. The company#8217;s security and open source revenues are growing #8212; but declines in Novell#8217;s legacy NetWare business have led to mixed overall results. The VAR Guy in March 2007 suggested that Novell should break itself up. […]

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