Is the Linux/Windows interoperability deal paying off for Novell?

The Linux vendor partners with Microsoft in one respect and takes it head-on in another. This time, the results aren't too pleasing as Novell suffers a small quarterly loss.

Major business software and services vendor Novell lost revenues during its most recent quarter -- but the company's sales rose rather substantially in the areas of identity and access management and even more markedly, Linux, a market where Novell astonished the IT industry a little over a year ago by taking Microsoft -- traditionally an arch-rival of Linux -- as a close partner.

In a conference call with analysts last night, Novell officials blamed the vendor's loss of $17.9 million, or five cents a share, for the fourth fiscal quarter ending October 31 partly on the sale of Novell's Swiss-based consulting business.

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But meanwhile, Novell garnered $224.9 million in revenues for the fourth fiscal quarter of 2007. The increase was driven largely by a huge surge in sales of its Linux products for the August to September period to a total of $22 million, up 69 percent since the last fiscal quarter of 2006, said Ron Hovsepian, Novell's CEO.

Novell first rose to fame mainly on the basis of its NetWare network operating system (NOS). The company then entered the Linux market through acquisition, buying German-based SuSE Linux and integrating SuSE software products into its software and services line-up.

Over the years since, Novell has gradually phased out its NetWare products in favor of Linux, another factor which has contributed to overall growth of its Linux business.

But did Novell's controversial interoperability agreement with Microsoft -- announced late last year -- also help to spur SuSE Linux sales? It certainly doesn't seem to have hurt.

At the time, the move kicked off a furor among many members of the Linux and open source communities, who accused Novell of breaking ranks with other flavors -- or "distributions" -- of Linux, and of selling out to the Microsoft giant.

But even at the outset, many customers -- tired of juggling separate IT mechanisms for Windows and Linux -- said they favored the move.

Some observers also predicted, apparently correctly, that Novell's relationship with Microsoft might help sway some customers -- previously hesitant about Linux -- to try out SuSE Linux.

Hovsepian told analysts last night that, over the past fiscal year, Novell has added 4,700 new customers, including Wal-Mart, HSBC, and Wachovia, for example.

Also, Dell and Lenovo have both started selling notebook and desktop PCs running SuSE Linux. SAP has named Novell its preferred Linux provider -- and Novell and Microsoft have opened up a new interoperability lab in Cambridge, MA.

Also for the fourth quarter, Novell's sales of identity and access management software stepped up 27 percent, to $30 million. Rising more modestly -- at levels of five percent and 1 percent, respectively -- were Novell's revenues from systems and resource management software and workgroup software.

With the sale of its Swiss business unit this quarter, Novell exited all aspects of IT consulting, according to Hovsepian.

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