Things are not very happy at the moment at the Utah-based firm. As many as 20 bidders are being solicited by a reportedly less than unified main board; and truly bad numbers just out have less than impressed the market.
In the second quarter, Novell saw software license fees drop 8.5%, maintenance and subscription sales dropped 2.8%, while services (mostly training and professional services) fell by a pretty shocking 16.8%.
The company can be commended for only seeing sales overall dip 5.4% and even seeing a slight profit uptick, down to very tight cost control. But in a gradually rising market, this is not the kind of performance investors will tolerate or customers feel reassured by.
It’s hard to come to any other conclusion other than Novell’s genuine attempt to break out of what was a dying market – selling its proprietary NetWare network operating system and GroupWise messaging and collaboration software (which was of all things a former WordPerfect product) – has come to naught.
Novell has struggled to make the $210m purchase of Germany’s SUSE Linux work. It has taken six and a half years to get the thing to break-even point, a hardly stellar bit of operating that now has proven fruitless, basically.
That’s really quite a damning statistic. Our friends at Red Hat – and yes, we know that it does a lot more than just support commercial Linux deployments, but that is still the ‘kernel’ (excuse the pun) of its business – announced in March total revenue up 15% over the prior year and subscription revenue (the Linux component) climbed 18% year-on-year.
What’s gone wrong? Coupla things in terms of poor operations haven’t help. The company got in bed with Microsoft to help steal a lead over its main rival, but reports suggest that MSFT very much had the better end of that deal commercially, screwing Novell down to a less than advantageous percentage rate on resale. It’s also slipped a bit in terms of delivering SUSE Linux 11 Service Pack 1.
But the real logic in operation here is that customers, despite what capitalism is supposed to be about, don’t like too much choice, basically. IBM used to make us laugh in the 1990s when it knocked open systems as being ‘the tyranny of choice’; as all good Thatcherites, we booed and hissed, demanding thousands of OS alternatives bloomed. Well, IT shops like as few as possible, it turns out. They’d like to get away with one – it starts with ‘W’ and ends in ‘s,’ by the way… but if they have to, they’ll tolerate two. And why bother with the other game in the other game in town?
Hard to see who’d buy Novell. It did get a $1bn private equity offer in March (this for a company that last December reported total FY 2009 sales of $862m, on which it made an operating loss of $206m). There’s obviously still a legacy business and there is some Linux activity for it. Would Red Hat step in to swoop that bit up, or wait for it to be broken out in a post-takeover fire-sale?
The very fact we are so openly discussing this means it’s surely Game Over for Ray Noorda’s old IT stalwart. Novell tried but there’s only room for one Linux. Now move along here, folks – nothing left to see.
