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TELECOMS AND SOFTWARE NEWS
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Novell sheds more light on its profitability, but disappoints
Laurent Lachal
Novell sheds more light on its profitability, but disappoints
At the end of May 2009 Novell released the results of its second fiscal quarter 2009 (ended April). Revenue growth was more disappointing than in the first quarter, especially for the System and Resource Management (SRM) business unit and for the GroupWise email platform. However, profitability remained steady. More interestingly, Novell disclosed that two of its four business units, Open Platform Solutions (OPS - in charge of Linux) and Identity and Security Management (ISM), are not profitable yet but should become so within the next 12-18 months.
Novell continues to disappoint
The slowdown in Novell's revenue growth started in 4Q08 and deepened in 1Q09. The second quarter of 2009 continued the trend. For the whole half fiscal year, revenues were down 8% to $430.5 million. Maintenance revenues grew 5% while licensing and service revenues collapsed, down more than 30% each. On the service front, this is the result of Novell actively shifting some of its activities to partners. The licensing figures are more worrying. Invoicing fared even worse than licensing revenues. This means that instead of being stronger than the first half of fiscal 2009, as it usually is, the second half of the year could be flat year-on-year. Novell does not expect it to be down, but we would not be overly surprised if it were. For more information see the recently released Novell Inc. vendor profile and the report Novell: right company strategy, product strategy could improve. Profitability remains stable but Novell should be careful not to cut too many corners
Profitability figures are in line with the first quarter, but since 2Q08 was pretty dismal on that front, the increase in profitability looks particularly impressive. Income from operations was $17.6 million (or 8.2% operating margin, up from 0.7% the year before). Novell maintained its margin owing to its own cost-cutting efforts (sales and marketing expenses were down 19.4% during the quarter, which may prove counterproductive in the long run) and impact from foreign currency exchange rates (which positively impacted operating income by $7 million).It is good to see Novell being more transparent about the profitability of its OPS (Linux) and ISM business units
Revenues from the ISM business unit were flat in 2Q09, down 1% year-on-year to 30.3 million, following a dismal first quarter when it shrunk 13%. On the other hand, Novell promised that the business unit would reach profitability within the next 12 months. Linux revenues increased 25% year-on-year to $36.7 million in the second quarter, but invoicing was flat, up 2% to $40 million - which does not bode well for the future. However, while Novell announced that its OPS business unit was not profitable it declared that it would break even within the next 12-18 months. For more information, see the report Novell: turning the Linux market into a healthy duopoly.Novell needs to shore up its SRM business unit
Revenue growth from the SRM business unit slowed down to 9% in the first quarter and then moved slightly into the red in the second quarter, down 2% to $40 million - with total invoicing down 13%. This is not a pretty picture, and all the more since it includes revenues from PlateSpin and Managed Objects, acquired in 2008. For more information please refer to the Ovum report Novell: towards managing the data centre. It might also want to give up on GroupWise
The Workgroup business unit generated $79 million, down 14%. OES/NetWare revenues were $45 million, down 13%. Novell's objective is to get back to 'single-digit decline rates'. More worryingly, Novell's collaboration offering, mostly the GroupWise email platform, shrunk 13.8% to $24.4 million, an even worse performance than in the first quarter, when it was down 9%. As with OES/Netware, licensing revenues collapsed (down 53% in 1H09), despite the latest, and much anticipated, version of GroupWise (Version 8) hitting the streets at the end of December 2008. Ovum has been a long-term advocate of Novell giving up on GroupWise. If it continues to do so badly, the company may not be left with any other choice.
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