Novell Eyes Linux Tuned For SMBs

Novell may roll a version of Linux tuned specifically for the SMB market, chairman and CEO Jack Messman said Thursday during a conference call announcing the company's strong fiscal 2004 earnings and return to profitability.

"We have many competitive advantages here that will allow us to become a leader in Linux in a short period of time," Messman said. "In addition, we probably need a Linux offering for the SMB market, which our channel partners can sell along with us."

Few vendors field Linux distributions targeted solely at the SMB space, so such an offering could go a step further in helping Novell position itself as a vendor with a full range of open-source offerings. That's a message the company emphasized earlier this month, when it added Novell Linux Desktop to its product lineup alongside its flagship SuSE Linux Enterprise Server 9 operating system.

In yesterday's call, Messman indicated that the company's SuSE Linux operation, which it acquired a year ago, continues to a bright spot for Novell. "We're seeing increased demand from large customers for enterprisewide licensing agreements," he said. In Novell's 2004 fourth fiscal quarter, which ended Oct. 31, the company took in $12 million in Linux revenue. That number was stoked by sales of 21,000 subscriptions for its Enterprise Server OS, more than half of which were in North America. In addition, Novell booked three separate multiyear licensing agreements with unnamed Fortune 100 companies.

On the financial front, Novell yesterday reported overall fourth fiscal quarter revenue of $301 million, compared with revenues of $287 million for the year-earlier quarter. Net income was $13 million, compared with a loss of $109 million for the fourth quarter of 2003.Even better for Novell was the news that its 2004 fiscal year as a whole saw the company bounce back to profitability. Full-year revenue was $1.166 billion, with net income of $31 million. That compares with fiscal 2003 revenue of $1.105 billion and a net loss of $162 million.

To boost its Linux business moving forward, Messman said that Novell needs to focus more on working with larger software application vendors, presumably to get them to port over their apps. He also pointed to Novell's recent deals with Dell -- the direct-sales giant is both an OEM marketer of SuSE Linux and a customer -- as another venue for increase sales.

Giving short shrift to competitor Red Hat, which dominates the Linux marketplace, Messman took stabs at Microsoft and Sun Microsystems. "The real competitor here is Microsoft, not our Linux competitors, so I think we better start focusing on them," Messman said. "Novell Linux Desktop is the first step in that direction."

As for Sun, Messman addressed its release last week of a major upgrade to the Unix-like Solaris 10 operating system, issuing a potential legal threat. "Sun has announced that they're going to open-source Solaris 10, [but] they haven't announced what kind of a licensing agreement they will have for that," he said. "We're going to be interested in seeing how they do that, because as you know we own Unix. We own the copyrights and the patents, and Solaris is somewhat built on that. [Their licensing plan] may be a play here on Open BSD [the Berkeley open-source license] that they're thinking about, but we don't know until we see how they do that."

Messman characterized Solaris 10 as a product intended "to stem the decline of Solaris' installed base." "Of course we have a similar situation with NetWare, so we can sympathize with them," he says. "But, overall, their move to embrace open-source [licensing] is a validation of the open-source movement. In the long run, though, I don't think it can compete with open-source Linux, because they can't afford to continue to develop Solaris and compete with the open-source model. In the open-source model, we have no development costs, and those are borne by the open-source community."On another revenue-related front, Novell reported yesterday that it had just received a check from Microsoft for $536 million, which was due under an agreement that settled potential antitrust litigation related to Novell's NetWare OS. NetWare has historically been Novell's major product line, but the company is moving to transition its customers to Linux and to a product called Open Enterprise Server. Identity-management software will also figure prominently in Novell's future plans.