When Novell disclosed 3Q financial results today, The VAR Guy quickly spotted good news and bad news: Sales of Novell’s Linux Platform Products continue to impress. But what the heck is happening with Novell’s identity, access and compliance management business — where sales fell sharply? It begs the question: Do Novell’s products really belong together under one roof? Here’s the scoop.
Let’s start with the good news: Novell is profitable, delivering $17 million in net income for the quarter. That figure met analysts’ expectations.
Linux Platform Products revenue jumped 22 percent to $38 million for the quarter. Impressive. And The VAR Guy thinks Novell is finally on the right track with SUSE Linux ISVs (independent software vendors). More than 2,000 ISVs have embraced Novell’s new SUSE Appliance effort. So far, so good.
Just how well is Novell performing in the open source market? The VAR Guy will be sure to get a competitive reality check during the Red Hat Summit (Sept. 1-4, Chicago).
The Disconnect
Now, for Novell’s lingering problem. As the company’s open source business continues to grow the rest of Novell continues to contract.
A prime example: The VAR Guy was particularly surprised to see Novell’s Identity, Access and Compliance Management business fall 16 percent to $28 million for the quarter. Security is a growing market, folks. It’s among the top things businesses continue to invest in during the recession.
Perhaps there was a one-time reason for this falling security revenue. Regardless, even the mainstream media sees the issue. As MarketWatch reported:
“Novell Inc. on Thursday posted a slightly worse-than-expected decline in revenue for its fiscal third quarter, as product sales of identity and security management and systems and resource management software each fell sharply.”
The ultimate question: Can Novell teach partners how to cross-sell open source and security solutions? Or is the Novell product portfolio filled with puzzle pieces that don’t quite fit together?
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I would venture to say that it is simple a matter of focus. Novell’s culture is notorious for not having the ability to manage more than a single portfolio.
Look at years past. When Novell had only Netware they did well. When ZEN came along, Netware went down the tubes, when Identity Management came along ZENworks started to suffer and now with the focus being on Linux, IDM is now suffering.
Focus and execution. They can focus, they still cannot execute.
ex-Novellian: Thanks for the note. NetWare was on the decline long before Zen came along. But you make an interesting point… Novell is typically a one-product wonder. At least that’s the perception.
As an ex-Novellian,I agree wholeheartedly with the ex-Novellian. Novell has trouble focusing; Red Hat’s great strength. Novell jumps from product to product at such a rate to try to generate revenue (often marginal revenue), the salesforce cannot keep up. Novell has offerings such as Mono, SLE Real-time, SLE HA, etc. just in the OPS BU and none of these products will generate much revenue, but lots of marketing push has been/is being placed around these products. Another area is software appliances. Hugh numbers of ISV software appliances have to sold for Novell to make its $50 or $60 per JeOS in the appliances. Take a look at the resources poured into ZENworks Orchestrator and now PlateSpin Orchestrate for essentially no revenue. Some things never change.
I only partly agree with ex-Novellian and Bill.
I don’t think Novell can manage, period. (I’ll clarify that slightly; there are just some management disciplines at which they don’t cut the mustard. There may be others at which they can cope, but at this management thing, whatever you do really badly, one day the environment will change and the one thing you do badly will become the only thing that you have to get right. By then, you need to have learnt and I see no sign of that glorious day dawning, just yet.)
When they have been fortunate enough to be in a market area which is very healthy (Netware before MS came along and ate its lunch, Linux today) the company does well enough, but look at the numebr of times and the countless dollars poured into efforts to establish a post-Netware business. You’d have to say that they have had quite a few attempts to re-invent the business without much sign of success until SuSE came along.
You get the impression that they had to throw things at the wall time after time in order to get just one thing to stick.
And, even in the SuSE division, there are things that happen that don’t seem to be, superficially, evidence of good management (like unceremonious dumping of whole teams after minor changes of strategy…of course they’ll have ‘functional’ arguments for this, but you have to wonder about the effect on those who remain).
So, I’ve been with SuSE as a distro since long before Novell came on the scene and I still am, but, I find it absolutely necessary now to have a ‘fall-back’ position, and to be able easily to switch to the fall-back position, in case Novell does something really quite impossible to live with.
And my impression is (based on third-hand comments, so this may well be innaccurate) that the paid-for support operation out of Novell doesn’t really compare with the industry best. Do Novell know how to run a directly customer focussed business unit like that? The evidence is weak. Now that might not be that important to some in a world in which alternative sources of tech support abound, but it is important to Novell if enterprise customers vote with their feet.
I didn’t feel I needed that fall-back strategy before. So, the surprise to me has been that they haven’t managed to destroy the SuSE business, rather than that any other divison of the organisation is in poor shape. But I am pleased to be surprised, I just don’t know how long that will last.
As a long-time reseller for Novell products and services I’ve seen the company go through rapid growth, stagnation and rebirth. Novell got open source religion in 2003 with the acquisition of Ximian and SUSE. Novell needed a new OS stack to replace NetWare, which had been pretty well routed by Microsoft Windows over the previous 10 years.
Today all of Novell’s networking, management, collaboration and identity services run on SUSE and Windows. NetWare can still run some of them but most of the newer versions are not being written for NetWare.
The release of OES2 SP2 in Q4 this year on SLES10 SP3 will complete the transplanting of Novell’s services from NetWare to SUSE. OES3 is already in the development phase.
In a depressed economy it isn’t surprising that some aspects of Novell’s business might actually show declining revenues quarter over quarter or year or year. It is going to take years to come out of the current economic depression. Even Microsoft reported some of the worse financials in its entire history.
Based on the depth of the current economic depression, I would not read too much into the ability of Novell to manage all its product portfolios in order to show a profit. There are product divisions at Microsoft that have never shown a profit too.
What concerns me more is the lack of Novell product and service offerings that are tailored to the cloud computing environment, which is the future of IT. So far I think their response has been a bit underwhelming and this concerns me more than whether their identity portfolio is losing or making money.
Tim: The VAR Guy appreciates your real world experiences/perspectives involving Novell. Your points about Novell’s relative silence on cloud computing certainly caught The VAR Guy’s ear. Our resident blogger remains concerned about Novell’s identity management/security efforts because those are growing markets where Novell often lacks an identity (pardon the pun).
Thanks again for posting your balanced comments on Novell.
One thing I think people don’t realize is that Novell today is NOT the Novell of yesterday. It would be like saying Sun Microsystem is full of very driven technical people planning on taking over the world instead of the dead beat execs looking to cash in.
What was once true may no longer be true.
I’ll go so far as to say Novell would not have bought SUSE if it was the Novell of old.
With that said, Novell enterprise products are… well… enterprise products. Which means, they install weirdly and can be hard to set up and use. If Novell is more interested in people using their pricier tools, they need to make these VERY available for FREE. Not that they’ll work forever in the free state, but they have to be able to deliver easily obtained software for trial use WITHOUT the end user having to go through a myriad of hoops.
Novell needs to learn that it’s important to put your software into everyone’s hands. The customer purchases will follow without coercion… if your installs/functions/etc. work well.
As an SMB reseller, we need to see consistently high margins on software products we sell. For the last decade, Novell, through its designated online retailers shrunk the margin so bad that it forced us to find a competing solution. When my cost at disti is pennies below CDW’s online price, I go find something else to do. I have expressed my concerns, but the small players have no leverage, and that is OK, as I have leverage elsewhere.
I know that the Groupwise margins have thickened, but SUSE margins are still tighter than I would like to see. I am looking for incentive and without it I will find incentives elsewhere.
It is a catch 22. Software manufacturer: ‘You can get higher margins if you sell more.’ SMB Reseller: ‘I can’t sell more due to the low margins.’
But this is OK, because I have my longstanding customers and solutions that still sell at high margins. In other words, this is not a criticism, but an observation, as I no longer have a stake in it, but always looking for opportunity.
HurdyGurdy: The VAR Guy must concede… he thinks the days of software margins are over. The most profitable VARs and solutions providers seem to be doing custom development and integration work on top of newer platforms like Microsoft SharePoint and/or Red Hat JBoss. The idea of “reselling” software at a profit seems dead to our resident blogger.
Many Novell solutions have been made irrelevant because of how good their Linux base is, yet they still try to push them – rather than adapting them to the new environment.
Business will pick up once they’ve finished restructuring around their Linux products.
NthDegree: Actually, The VAR Guy thinks SUSE Linux is the least of Novell’s problems. SUSE-related revenues are growing. It’s the rest of NOVL’s business that needs closer evaluation… …
There is a thing called basics, I guess Novell management does not get it… Netware was known for its Security, Speed and Robustness. Businesses require Software Applications to run an efficient operation and invoicing needs, Software Applications require a platform to run on… The biggest problem with Novell is that it has not been able to catch the Application Developers attention. What do you do then? Hell, why don´t you develop an application that business need and run it on your platform! This going into teaming, identity management and virtualization are things that have been invented!! Innovation is the KEY!! Novell has great engineers, minimize the amount of product offerings and focus! Novell management is shooting a shotgun of products, which in turn diminishes the company resources, focus on innovated products that fill a niche in every business….
Lost Opportunities: The VAR Guy welcomes constructive criticism. But he thinks Novell may finally be solving the application issue with the SUSE appliance push in recent months. Quarterly results are coming soon. Stay tuned.
-TVG
Like I said, Novell management has no iniative, they are sitting on a cash cow, unfortunately time is running out…
Hedge fund offers $1.8 billion for Novell
by Erica Ogg
Font sizePrintE-mailShare2 comments .Share Elliott Associates has offered to acquire software maker Novell, according to The Wall Street Journal.
The acquisition offer, delivered in a letter to Novell’s board of directors, is valued at $1.8 billion, or $5.75 per share. Elliott Associates already owns 8.5 percent of Novell’s shares, which it began buying up in January.
According to the Journal, Elliott Associates told Novell’s board that the stock has “meaningfully underperformed” and called recent acquisitions and changes in strategies “unsuccessful.” The hedge fund says its experience in restructuring and acquisitions will “deliver maximum value to shareholders.”
Representatives of Novell did not immediately respond to a request for comment. Shares of its stock jumped 26 percent, to $6, in after-hours trading on the news.
Novell is certainly a long way from its heyday. At one time, its Netware operating system was widely used on corporate servers. It also had ambitions to rival Microsoft, acquiring the WordPerfect suite of desktop applications, a tough competitor to Microsoft’s Office suite. But Novell, perhaps as much as any company, learned what it’s like to compete with Microsoft and lose. When Windows NT hit the market in the 1990s, Novell began a slow decline. Several CEOs came and went, including Google CEO Eric Schmidt.
In fact, Schmidt saw early success at Novell’s helm, even briefly moving the company’s executive offices from Utah to San Jose, Calif. Schmidt pushed the company to release Netware 5.0 well ahead of Microsoft’s Windows 2000. But once Windows 2000 debuted, Schmidt and the rest of Novell didn’t have a good response, and the company’s decline continued.
After Schmidt left, the company returned to its Utah roots and enthusiastically embraced open-source software. Again, it was outmaneuvered by other software companies, most notably Linux distributor Red Hat.
CNET’s Jim Kerstetter contributed to this report.
Lost Opportunities:
‘In fact, Schmidt saw early success at Novell’s helm, even briefly moving the company’s executive offices from Utah to San Jose, Calif. Schmidt pushed the company to release Netware 5.0 well ahead of Microsoft’s Windows 2000. But once Windows 2000 debuted, Schmidt and the rest of Novell didn’t have a good response, and the company’s decline continued.’
I agree with this paragraph. I am not sure Schmidt brought any value to the table, as Microsoft was winning away their army of resellers looking for a more profitable software to sell. They tried punishing their small resellers, but lost, as their smaller resellers found a safe harbor and a more profitable partner. The small reseller was given respect and repaid Microsoft’s generosity tenfold. So I think Schmidt just rode it down and then out, like any good overpaid Chief Executive would. Too bad he didn’t understand what made Novell succeed in their early days. They created the channel and then told the small resellers to go sell something else, as they were not valued like their large resellers.
Unless they change the way they do business, nothing will turn for the better, in my opinion.
Schmidt made the stock go up to 40, which no other Novell CEO had done in recent times…