Future remains cloudy for Novell despite sales rise

23 August 2002 Network operating system vendor Novell has reported a 27% spike in sales in Europe in its latest financial quarter. However, this revenue growth masks the fragile state of Novell’s overall business.

For its third quarter ending July 2002, Novell delivered total revenues of $282.3 million (€291.9m), up 13% on sales of $249.1 million in the same period a year ago. The company also returned net income of $8.3 million (€8.6m), compared to a loss of $33.6 million (€34.5m) in its third quarter in 2001.

Europe accounted for much of its latest revenue growth. Its Europe, Middle East and Africa division contributed $102 million (€105.2m), compared to $75 million (€77.3m) in the same period in 2001. This means that Europe now accounts for 36% of Novell’s revenues, while the US brings in 51%.

But at a product level, Novell is still struggling. Revenues for its Net Management Services division, which relies heavily on its flagship NetWare operating system, fell by 7%. This indicates a continuing slump in sales of NetWare, which was the leading enterprise operating system in the mid-1990s. Since then, Microsoft Windows NT and 2000 and latterly the open source operating system Linux have overtaken Netware.

Novell’s revenues have been buoyed by revenues from the acquisition of services company Cambridge Technology Partners.

Novell bought Cambridge in March 2001 – a deal that was finalised in mid-July 2001. But Novell’s third quarter services revenues fell sequentially by 2% to $74 million (€76.3m). If services revenues are stripped away Novell’s sales figures look very weak indeed.

The main bright spot for Novell was the continuing rise in sales of directory software, up which rose to $13 million (€13.4m), a 62% jump on the third quarter of 2001. This came in spite of stiff competition from Microsoft, which has bundled its own directory software with Windows 2000 for more than two years.

Directory software is at the heart of Novell’s web services strategy – the application programming approach to discover, build and deliver software modules as a service over the Internet. To beef-up its web services technology Novell acquired SilverStream Software for $212 million ($218.6m) in June 2002.

However, while Novell’s directory software and SilverStream’s application server technology are highly rated, both companies are regarded as ‘also-rans’ and analysts remain divided about the merits of the deal.

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Ben Rossi

Ben was Vitesse Media's editorial director, leading content creation and editorial strategy across all Vitesse products, including its market-leading B2B and consumer magazines, websites, research and...

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