| Novell turns a profit on reduced net income |
Dec. 05, 2006
This year, Linux distributor Novell Inc. has replaced its CEO, battled SCO, concluded a major partnership with arch-enemy Microsoft, and suffered a storm of outrage from angered open-source fans over this deal. Still, the company managed to eek out a small profit.
Novell's financial results for its fourth fiscal quarter and fiscal year ended Oct. 31, 2006. However, these results remain preliminary, because Novell, like many other companies, has begun a voluntary review of its historical stock option practices and related potential accounting impact.
Novell's audit is continuing to go on. The company expects to file its Form 10-Q report for the third fiscal quarter ended July 31, 2006 and Form 10-K report for the full 2006 fiscal year when the review is concluded.
The good news about the preliminary results is that the company's Linux revenue grew 26 percent year-over-year. In addition, identity and access management revenue grew 30 percent year-over-year. Since new CEO Ronald Hovsepian said in June when he took over that, "Going forward, we will maintain a sharp focus on meeting customer demand and delivering value through Linux-based, enterprise wide solutions and identity and resource management products," it would seem that Novell is delivering on its plans.
Getting to the numbers, for the fourth fiscal quarter 2006, Novell reported net revenue of $245 million, compared to net revenue of $288 million for the fourth fiscal quarter of 2005. The net income available to common stockholders from continuing operations in the fourth fiscal quarter 2006 was $25 million, or six cents per diluted common share. This compares to a loss of $6 million, or two cents loss per diluted common share, for the fourth fiscal quarter 2005.
Novell managed a profit in the latest quarter by cutting its operating costs 22 percent. The analysts, according to Thomson Financial, had forecast earnings of 4 cents per share and sales of $251.4 million.
During the fourth fiscal quarter of 2006, Novell reported $13 million of revenue from Linux Platform Products, up 32 percent year-over-year. Revenue from Identity and Access Management was $24 million, up 3 percent year-over-year. As was expected, combined revenue from Open Enterprise Server and NetWare-related products declined 25 percent from the year ago period.
For the full fiscal year 2006, Novell reported revenue of $967 million and net income available to common stockholders from continuing operations of $21 million, or six cents per diluted common share. Comparatively, revenue for the full fiscal year 2005 was $1.039 billion and net income available to common stockholders from continuing operations was $373 million, or $0.85 per diluted common share. That sum, however, included a one-time 2004 $448 million net legal settlement from Microsoft.
Commenting on the company's progress, Hovsepian said the company is "pleased with the progress we made in our key growth categories of Linux and Identity in fiscal year 2006."
"Coupled with the unprecedented Linux partnership with Microsoft just recently announced, we will add significant momentum to our Linux business," Hovespian continued. "With these proof points established and with the initiatives we have begun to improve our sales model, development processes and back office efficiencies, we feel confident that we are on the right path to put Novell on target for sustained profitability in the future."
Novell continues to be cash rich. The company has cash, cash equivalents, and short-term investments of $1.5 billion at Oct. 31, 2006, compared to $1.3 billion last quarter.
Because the financial results for the third fiscal quarter remain preliminary, Novell also announced that an increase of $9 million in accrued liabilities as a result of a change in estimate identified during the fourth fiscal quarter 2006 has now been counted as an expense in the third quarter. The net effect was that operating expenses increased by $9 million, and the net loss to common stockholders increased from the previously reported $3 million, or $0.01 loss per diluted common share, to $10 million, or $0.03 loss per diluted common share. Third fiscal quarter 2006 non-GAAP (Generally Accepted Accounting Principles) adjusted income available to common stockholders from continuing operations of $20 million, or $0.05 per diluted common share, remained unchanged.
Looking ahead, Novell said that over the next fiscal year, it expects net revenue to be between $945 million and $975 million.
-- Steven J. Vaughan-Nichols
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