CEO Eric Schmidt appears to be leading Novell Inc out of the rut it had fallen into as the company reported its best quarter of earnings since January 1997. Novell reported third-quarter net income up 85% at $49.3m compared with $26.5m on revenue that increased 20% to $326.8m from $272m. Earnings per share were $0.14, a penny better than the average of analysts’ estimates as reported by First Call. At the nine-month mark, net income was up 95% at $116.9m on revenue up 18% at $928.2m.
Novell pinned its success in the quarter on sales of products that use its Novell Directory Services software, which saw 31% year-over-year growth and accounted for 92% of total revenue. Directory-enabled NetWare brought in $175m, up 27% on the same period last year. Directory-enabled applications grew 34% to $75m and directory-related services, education and consulting contributed $49m, up 43%. Meanwhile, sales of older, pre- directory products, including NetWare 3, declined 37% to $28m and accounted for just 8% of overall revenue.
According to chief financial officer Dennis Raney, the company had set internal goals for revenue growth in the three main areas of the directory-related business. NetWare easily beat its target of 15% growth on the strength of NetWare 5 sales – up 19% from the preceding quarter at $108m. Services and consulting also topped its target of 30% growth year-over-year, spurred along by strong growth in site licenses. But the 34% growth in directory- enabled applications actually fell shy of the 40% internal projections.
The company said growth in revenue from site-licenses for large network directory deployments was up 42% year-over-year to $192m, half from NetWare directory-enabled platform licenses, the rest from directory-enabled applications which include GroupWise, ZENworks, BorderManager, and support services and directory solutions consulting.
Strong gains in Germany, UK, France, Netherlands, Spain and Russia helped the Europe, Middle East and Africa division increase its sales by 39% to $100m. Asia Pacific revenue grew 27% to $24m. US revenue was up 13%, or 18% on a pro forma basis, at $183m. The rest of the Americas region saw revenue increase 4% to $20m.
Raney added that the quarter was helped by the further reduction of already declining channel inventory as the company moves to a more efficient channel model. On the balance sheet, cash and short-term investments were $992m at the end of the quarter, down from $1.01bn at the October 1998 fiscal year-end. Net cash from operations contributed $87m in the quarter, offset by expenditures for share repurchase, fixed assets and two small acquisitions for which the financials still have not been disclosed. During the quarter, the company spent $57m to repurchase 4 million shares of common stock.
Novell says it will add more directory-enabled applications it and has other electronic commerce infrastructure software due before the end of its next financial year which ends October 2000. It will address quality of service, policy-based management, personal identity control, caching performance and public key security. The company is poised to make a big play for its recently-introduced directory-enabled caching software.
