NOVL
Novell, Inc.

conference date: March 1, 2007 @ 2:00 PM Pacific Time
for quarter ending: January 31, 2007 (Q1 fiscal 2007)

Overview: Results remain preliminary due to options review. Revenue shrinkage continues.

Basic data:

Revenues were $230 million, down 5% year-over-year.

Net loss was $20 million or $0.06 per share, worse than the $4 million or $0.01 per share loss year-earlier. Non-GAAP loss was $3 million.

Cash and equivalents ended at $1.8 billion, up $300 million sequentially, mostly from payments by Microsoft.

Guidance:

For fiscal 2007 net revenue is expected between $945 and $975 million. Non-GAAP net income expected between $0 and $10 million, which excludes $35 to $45 million in stock-based compensation expense.

Conference Highlights:

$15 million of revenue was from Linux Platform Products, up 46% year-over-year. Identity and Access Management revenue was 24 million, down 7%. Open Enterprise Server segment declined 18%. IT Consulting declined as well.

Systems and Resource management is now a stand alone unit, with $32 million revenue, or 14% of total. Open Platform Solutions revenue was $17.4 million, or 7.6% of total. Workgroup revenue was $80.5 million, or 35.1% of total. Global Services segment was $72.1 million and 31.4% of total.

$163 million operating expense. Cost of revenue $74.2 million.

Microsoft partnership is off to a strong start and is partly responsible for Linux revenue growth. Over 40,000 certificates activated. Many key customer wins including Walmart. Over 1 million downloads. Agreement with Microsoft is in accord with GPL2.

Initiatives require investments this year that will begin to pay off in 2008. These will help reduce sales, back office, and R&D costs. Hope to exit with 5 to 7% operating margin, but next few quarters will have higher expenses due to initiative spending.

Identity segment did worse than expected and they are optimistic about turning it around.

Q&A:

Microsoft-based activation color? Going according to plan. They focused on the largest enterprise customers, many of whom were already in the pipeline. Also focused on North America, so can now focus more on Europe.

$348 million of cash flow was generated by Microsoft deal. Cash flow from operations would have been zero without that impact.

Cash? It is a substantial amount of cash, they regularly review strategic alternatives. Does not have a buy back program to announce today.

Any impact of virtualization? Just beginning to see this implemented. Does not expect to see a major impact because Novell does not use a model subject to that.

Is there a lockout of other vendors in Novell-Microsoft virtualization? No, hypervisor will be able to work with community.

Getting positive feedback about Novell-Microsoft interoperability.

Pre-paid Microsoft coupon situation? Contract was designed not to have a cap. There is an unlimited ability to do more certificates.

Linux adoption color? Still largely built on migration from UNIX. Still a lot of UNIX out there to be migrated. Occasionally take some ground from proprietary systems. Solaris (Sun) conversions may be slower, but can't stop the landslide movement to UNIX.

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Copyright 2007 William P. Meyers