Stay on top of the latest tech news with our free IT News Digest newsletter, delivered each weekday.
Automatically sign up today!


Stephen Shankland

Staff Writer, CNET

Novell, which is transplanting Linux into the core of its software product line, on Tuesday reported surpassing analyst profit expectations for a quarter boosted by a legal settlement with Microsoft.

Excluding the $448 million from Microsoft and some other unusual items, Novell had net income of $10 million, or 3 cents per share, for the company’s first fiscal quarter of 2005, which ended Jan. 31. That marks a 9 percent decline compared to $11 million for the year-ago quarter and an average expectation of 2 cents per share among analysts surveyed by Thomson First Call.

Including the Microsoft settlement, the company had net income of $392 million, or 90 cents per share.

Revenue for the quarter increased 8.6 percent from $267 million in the year-ago quarter to $290 million. First Call analysts had expected revenue of $285 million.

A total of $15 million of revenue was related to the company’s SuSE Linux business, of which $7 million came from the 21,000 support subscriptions Novell sold for SuSE Linux Enterprise Server (SLES).

Chief Executive Jack Messman expressed guarded optimism about the quarter. “Novell made steady progress on executing its strategy this quarter,” he said in a statement. “We still have work ahead of us as we continue to reposition the company in our growth markets.”

Novell next month will begin bundling Linux with its older NetWare operating system in a product called Open Enterprise Server (OES). Novell wasn’t happy with sales from either operating system for the quarter, Messman said.

“We did not have as good a quarter in terms of NetWare performance, as I would have liked,” he said in a conference call. And regarding SuSE, he said, “Overall, we were disappointed with SLES sales this quarter.”

The company expects NetWare sales to perk up with the release of the first Open Enterprise Server in early March, Messman said. And there is solid future demand for SLES.

The company’s digital-identity and resource management software fared better, growing 19 percent to $57 million compared to the year-earlier quarter, Novell said.

The $448 million was what remained of a $536 million settlement of an antitrust suit against Microsoft after legal expenses and taxes had been subtracted, spokesman Bruce Lowry said. The Waltham, Mass.,-based company is still engaged in a newer lawsuit regarding the WordPerfect word-processing software.

Novell’s competition includes Red Hat, the top Linux seller; Microsoft, which was instrumental in dethroning NetWare for server operating systems in the 1990s; and Sun Microsystems, which is making its Solaris operating system into an open-source software project.

Red Hat sold 132,000 subscriptions to its Red Hat Enterprise Linux product in its most recent quarter and had revenue of $50.9 million.

Sun, despite its open-source effort and its move into Novell’s turf–with servers using x86 processors such as Intel’s Xeon and Advanced Micro Devices’ Opteron–isn’t worrying Messman. Of the OpenSolaris plan, he said, “I don’t see it helping them or hurting us.”