The $136 Million Linux Company You Don’t Know
Few people realize it, but a certain software company has generated $136 million in Linux-oriented sales during the past four quarters. Plus, the mystery company’s Linux sales essentially doubled in 2Q 2009 vs. 2Q 2007. Impressive. So why isn’t this mystery company a Wall Street darling? Here’s the scoop from The VAR Guy.
First, some fast stats: The mystery company’s Linux-oriented sales essentially doubled from $19 million in 2Q 2007, to $37 million in 2Q 2009. That growth is revealed in the following chart…
Mystery Company’s Quarterly Linux Sales, US Dollars (In Millions)
Big Growth, Little Buzz
With that type of Linux sales growth, you’d think The VAR Guy’s mystery company would rank among the hottest players on Wall Street and in the IT channel. But in reality, the mystery company’s stock has fallen roughly 50 percent over the past two years, according to Yahoo Finance. Ouch.
So what’s gone wrong? Three words: Perception And Legacy. The VAR Guy’s mystery company is Novell.
Novell’s Bigger Challenges
The chart below shows Novell’s bigger challenge. The data compares Novell’s total quarterly revenues (in red) vs. Linux revenues (in blue):
No doubt, the red/blue chart sum’s up Novell’s biggest challenge. Despite fast Linux sales growth, the open source operating system is still only a small fraction of Novell’s overall quarterly sales.
So when analysts, media and IT partners read about Novell’s overall financial performance, they hear about mixed revenue and net income results. But they often fail to realize just how quickly Novell’s Linux business has grown.
Memo to Novell: Start showing the quarterly Linux sales growth more clearly in all of Novell’s open source marketing and partner materials. Your progress may wind up surprising quite a few partners — and you may even win over some skeptics.
Microsoft And Red Hat, Oh My
Of course, The VAR Guy has graciously danced around some conspiracy theories suggesting the Microsoft-Novell relationship represents the bulk of Novell’s Linux sales growth. At this point, The VAR Guy doesn’t believe the alleged conspiracy… SUSE Linux is selling because customers want it, not because Microsoft is buying it.
Also, our resident blogger hasn’t offered up stats for Red Hat’s quarterly sales growth. No doubt, Red Hat’s top line and bottom line results are more impressive than Novell’s results. But cut The VAR Guy some slack. The point of this blog entry was to show how mixed perception of Novell’s business may not match the reality of Novell’s SUSE Linux sales.
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Not terribly impressive when you compare against both Red Hat and Ubuntu’s growth.
In fact, on its current growth rate, it won’t be long before Ubuntu overtakes Novell’s total Linux revenue.
Novell has had plenty of opportunity to execute, but continuously fails. I spent 11 years at Novell and every single year the company does the exact same thing. Until Novell successfully changes it’s culture, it will continue to flounder. With Redhat showing far more impressive growth, Novell continues to flounder in this execution conundrum. Dig into the 10k, the growth isn’t there. Sure they have “big deals” in Linux (all MS certs, btw), but actual usage is nil.
Novell is a great company with great technology, but Novell has also let all of the good sales staff go and I think you know the story behind the channel. It’s all about execution and without a top down change in culture, execution will continue to be beyond their reach.
BTW…@Frank Daley is spot on. In 5 short years, 2+ with Ubuntu Server, the gains are impressive. I was impressed enough.
Frank: The VAR Guy’s best estimate… Canonical’s annual Ubuntu revenue is about $30 million; Novell’s is about $136 million. We’ll see if Canonical can really close the gap as fast as you think…
JP: Keep The VAR Guy posted about your use of Ubuntu Server. Would love to hear more.
Sounds like the Linux business is a candidate for a spinoff? Or conversely, jettison the legacy business (NetWare etc) to sink or swim on its own, and commit entirely to Linux.
Lawrence: No doubt a few people on Wall Street have raised the same idea. But Novell also has a growing business in the areas of security and identity management, plus data center management. So there are some other pockets of growth that The VAR Guy didn’t mention in his original post.
OK then, keep the other growth stuff with the Linux business. But there’s definitely some deadweight there that could be spun off.
JP, you might want to be clearer in your full disclosure. That you once worked here and now work for Ubuntu doesn’t mean you’re biased but readers should still know. I think that’s what you meant by “I was impressed enough” but not sure everyone read it that way based on VAR Guy’s response.
You’re certainly entitled to your opinion. Mine, as you might imagine is different.
Scott: And to further clarify…
1. JP (from comment #2) is not associated with TheVARGuy.com
2. Joe Panettieri (a different person who signs everything -jp) is associated with this site, but is not the JP you mention
The Var Guy:
How does anyone, anywhere, make any sort of independent estimate with regard to Canonical’s sales? There’s no established financial reporting concerning ANY of Canonical’s revenue streams. There OEM services business is completely opaque in terms of pricing. There’s no information concerning profit sharing between Canonical and partners. There aren’t even any established numbers for the number of paying support customers or paying landscape users. Its quite irresponsible to pull numbers out of thin air to support the ~30 million in revenue claim for Canonical and hold them up against Novell’s financial disclosures. If you want to make the 30 million claim… back it up it with details… don’t just regurgitate a misquote from the NYT article from January where Shuttleworth said Canonical was creeping towards 30 million. At no point has anyone anywhere put down any solid numbers with regard to Canonical revenue.
After the detailed scrutiny of Novell’s published information…the completely unsubstantiated revenue estimate for Canonical seems out of character. Or maybe its the other way around. Maybe the effort put in the Novell analysis is the anomaly here.
-jef
Jef: Canonical CEO Mark Shuttleworth was quoted in the New York Times that revenue is nearing $30 million.
If Shuttleworth misstated the number, he’s surely pay for it later if/when he tries to sell or IPO Canonical, or strike some other business deal. So The VAR Guy is willing to trust Shuttleworth’s statement.
The Var Guy:
The actual verb used in the NYT article is “creeping towards”. Would you characterize Novell’s linux revenue growth as “creeping”? I myself am “creeping” towards retirement age. Want to take bets on whether I reach that goal before Canonical reaches sustainability as a business?
There is no misstament. The mistake is in how people choose to interpret and repackage exactly what he said. At no point did Shuttleworth say what the actual revenue number they have reached is. 5.1 million in annual revenue is just as accurately described as “creeping” towards 30 as is 28.8 million is as long as annual revenue growth was small and positive for the year.
In that article Shuttleworth draws a line in the sand and said 30 million is the number Canonical needs to sustain the effort to update the Ubuntu distribution. That article says far more about how expensive it is to roll out a linux distribution than it says about Canonical’s actual revenue. He doesn’t say Canonical is close to that 30 million mark at all. At best he establishes that revenue is vectoring upward towards that number..slowly crawling towards it, ie. “creeping”. I would not say “creeping” has nearly as strong a positive connotation as you see to place on it. But language is fluid, so maybe the definition of “creeping” has changed out from under me and is no longer being applied to describe the rate traffic movment at rush hour around the DC beltway. Times change.
There’s as much in what Shuttleworth didn’t say as what he said.
“But Mr. Shuttleworth contends that $30 million a year is self-sustaining revenue, just what he needs to finance regular Ubuntu updates.”
Regular Ubuntu updates. Think that include things like the development effort to port Ubuntu onto ARM chipsets? Or the effort to build the Canonical approved Amazon kernel image for EC2? Or the cost of certifying server hardware? Any service development cost for Landscape or for UbuntuOne? If 30 million annually is only the number to keep Ubuntu as a distribution rolling… what is the real number to keep forward momentum in an aggressive OEM and services marketplace? twice that?
-jef
Jef: Creeping. Inching. Dragging. Whatever the word, Shuttleworth made it clear that the $30 million destination is within reach. And since Canonical is privately held, that’s all The VAR Guy has to go on.
“You’re certainly entitled to your opinion. Mine, as you might imagine is different.”
You certainly are entitled to a different opinion Scott. Alas, it’s not backed up by any figures suggesting that any kind of growth or even hope is actually there. All Novell are doing is keeping the business that Suse had ticking over. One has to ask how Suse would have done as an independent company by now. Certainly, Novell hasn’t turned it into a real money spinner they can use to offset the decline in some of their legacy businesses.