Novell delivers another 33 percent quarterly rise in its Linux business

Novell has reported another solid quarter, despite narrowing its loss, which should give Red Hat pause.

As ever with Novell's earnings, there is good news and bad news. The bad news is that Novell's Workgroup plunged 6 percent to $92 million for the quarter compared to Q4 2007, coupled with a 26 percent decline in its services business. The two helped to drag Novell to a quarterly loss of $16 million, down from an $18 million loss in Q4 2007, and total revenue for the quarter at $243 million, $7 million less than Wall Street expected, as Reuters reports.

The good news? Everything but services and Workgroup rose, and significantly, resulting in an overall 6 percent increase in its product revenue for the quarter, and a 3 percent rise in total revenue for fiscal year 2008.

  • Novell's Linux business jumped to $33 million in the quarter, up 33 percent from Q4 2007. After several consecutive quarters of Linux growth, it's fair to say that Novell is a serious competitor in Linux again;
  • Identity and Access Management hit $35 million, up 11 percent compared to the same period last year; and
  • Systems and Resource Management topped $45 million, climbing 15% from Q4 2007.

On balance, Novell increased product revenue by 8 percent in fiscal year 2008, offset by a 20 percent decline in service revenue, which is a bit ironic given Novell's services focus a few years back with the acquisition of Cambridge Technology Partners (under Novell's former and Google's current CEO, Eric Schmidt). Now that Novell has moved beyond CTP's former CEO, Jack Messman, and Messman's legacy, the company seems to be on a growth spurt, except for its flailing Workgroup business.

As well as Identity Management and Resource Management are doing for Novell, however, the real story is its Linux growth, because it is Novell's Linux business that makes these other businesses relevant to would-be buyers. Novell's Linux business is still the smallest of its product businesses, but it is the linchpin that drives the others. A recent Goldman Sachs survey suggests that enterprises plan to spend less of their budgets with Novell in 2009, but so long as Novell can keep delivering strong Linux numbers, I suspect these spending priorities will change.

In case Red Hat had ever been tempted to be complacent, Novell's consistently good Linux numbers should eradicate that temptation. Novell is a viable Linux competitor again. Sure, much of its success, at least initially, is owed to the grace of Microsoft, which would be foolish to bet on long term.

But Novell offers solutions beyond Linux in its rising Identity Management and Resource Management businesses, plus a clear interoperability story with Microsoft. In other words, Novell is offering the market a more nuanced decision than "rip and replace," a choice that Red Hat must also consider.