Open Source Weblog

The good news is that Novell's quarterly sales are up from $232m a year ago to $236m this latest quarter. The bad news is that its revenue benefited from currency fluctuations to the tune of $8m, which means that on a like for like basis Novell actually shrunk year on year by $4m.

Novell CEO and president Ron Hovsepian: convinced the firm is "gaining momentum"

As for profits, the firm posted net income of $5.9m, a vast improvement over the year-ago net loss of $2.8m. So while the firm is not exactly growing like bamboo, Hovsepian is at least running a tight ship and growing profits.

As for where the revenue and profit came from, software licensing grew from $42m to $44m, maintenance grew from $139m to $150m, and services shrunk from $51m to $41m. But Hovsepian was also able to cut the cost of Novell's services biz from $49m to $44m, to offset otherwise greater losses.

Less encouraging news arises from the firm's balance sheet. It lost the equivalent of $35m from its cash and equivalents in the quarter, but better news was that it ended the quarter with still over $1bn in cash and equivalents and $427m in short term investments.

That in itself gives it a comfort zone not only to dabble in a few more risky initiatives but also to make further acquisitions to bolster its portfolio, including Linux-specific technologies.

So what about the firm's Linux-specific revenue? The company said it made $30m of product revenue from its Open Platform Solutions, of which $29m was from Linux Platform products. To put that in context, that's up 31% year on year.

This is perhaps the most important number for the Linux community, because it compares to revenue growth of 13% for identity and access management, and 15% for systems and resource management. Workgroup product revenue -- probably now considered Novell's legacy business -- was actually down 1% year on year.

The overall picture then in my view is of a company that has not only adapted well to the demands of the open source community, but is now seeing its strongest growth from that sector.

So while the company as a whole may have stalled slightly if you take into account currency fluctuations, it is something of a coiled spring: with cash and equivalents in the bank and short term investments of over $1.4bn, and a Linux business growing at around 31%, Novell is perhaps the best-placed company to make the most of the fabulous open source opportunity, that can only grow larger as the credit crunch/recession/constrained IT spending bites.

But Novell's turnaround is far from a done deal even now.

Few investors will do the kind of analysis I have presented above, looking instead only at total revenue growth and if you're lucky, profits too.

Hovsepian still has his work cut out to keep the firm's share price buoyant while the company gains the momentum he talks of (at the time of writing, its share price is in fact up almost 4.5% on the announcement of its results). So if I were him, I would be using some of that cash to buy some promising open source start-ups, as it has done from time to time already.

But what do you think? Hit the comment button and let me know.