Novell's third-quarter loss widens, but Linux booms by 30 percent

Novell has another great quarter, prompting the question: "Can open source save failing companies?"

Novell beat Wall Street's estimates with a solid third quarter, but the real story is in its continued Linux growth. Net revenue rose to $245 million from $237 million in 2007, but Novell's third-quarter loss quadrupled to $15.1 million from $3.7 million in 2007. The company reported its annual adjusted operating margin to be between 8 percent and 10 percent, up from an earlier expected 7 percent to 9 percent.

So, things are looking up.

Nowhere is this clearer than in Novell's Linux revenue, which soared 30 percent, year over year, to $31 million for the quarter. Novell invoiced a total of $51 million in Linux bookings in the quarter, up 36 percent year over year. Novell's Linux revenue is growing faster than the market, which IDC pegs at 19.7 percent CAGR from 2008 to 2010.

Where is much of it coming from? Unfortunately, Microsoft, but some signs suggest that Novell is increasingly standing on its own in the Linux market , rather than relying on Microsoft to peddle SUSE Linux (which it has no long-term incentive to do).

Novell has invoiced Microsoft for 73 percent of the original $240 million investment. There's now another $100 million to burn down, which I expect Microsoft to continue renewing as it attempts to chip away at Red Hat's leadership position in the Linux market. Microsoft will fail at this game, but perhaps it will take a billion dollars to realize this --or maybe a further weakening in the Windows server market vis-a-vis Linux.

Regardless, it's good to see Novell doing well in its Linux business. Its other product lines, excepting Workgroup which declined a further 1 percent, also showed growth. Could Novell be the first company to demonstrate that open source can rejuvenate a company's top and bottom lines?

Tech Culture
About the author

    Matt Asay is chief operating officer at Canonical, the company behind the Ubuntu Linux operating system. Prior to Canonical, Matt was general manager of the Americas division and vice president of business development at Alfresco, an open-source applications company. Matt brings a decade of in-the-trenches open-source business and legal experience to The Open Road, with an emphasis on emerging open-source business strategies and opportunities. He is a member of the CNET Blog Network and is not an employee of CNET. You can follow Matt on Twitter @mjasay.


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