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Novell Disappoints as Ownership Concerns Continue

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Enterprise software vendor Novell (NASDAQ: NOVL) fell short of its guidance for the third fiscal quarter of 2010, missing its financial projections with both revenues and income declining.

For the quarter, Novell reported revenue of $199 million, a decline of 8 percent from the third quarter of 2009. The company reported net income of $16 million, or $0.04 per share, dipping from the $17 million Novell posted in the third quarter of 2009.

Analysts polled by Thompson Reuters had expected revenue of $200.2 million and earnings of 7 cents per share. In its own third-quarter guidance the company had projected revenues between $205 and $210 million.

Novell attributed the decline in part to the uncertainty surrounding its ownership position.

“Our third-quarter revenue results were below our initial expectations, which we believe is principally related to customer uncertainty associated with the Novell board of directors’ ongoing review of various alternatives to enhance stockholder value,” Novell CEO Ron Hovsepian said during the company’s earning call.

Back in March, Novell rejected an unsolicited $2 billion bid from a hedge fund looking to take the company private. Novell’s board has been considering its options ever since.

That uncertainty around Novell’s ownership has affected Novell’s business in a number of ways, Hovsepian explained.

“Some deals you lose straight up, some deals get delayed, some deals get discounted,” he said. “So as you can imagine, we have felt all of those derivatives that can happen inside the environment.”

The uncertainty surrounding Novell’s ownership is also limiting its visibility into its financial outlook. Novell’s CFO Dana Russell declined to provide analysts with guidance for Novell’s fourth quarter.

“We’re not seeing the expected trends that we would normally see, and so our historical information doesn’t provide us a whole lot of guidance as to how we could be impacted here as we go through the fourth quarter,” Russell said. “Aside from that, if we were to look back at our historical information, we would expect some uptick. But because of the uncertainty that surrounds us at this point, we’re just having a difficult time providing guidance.”

The decline in revenues in the third quarter extended across Novell’s multiple product lines, including its security-management and operating platforms, as well as its Linux business.

Novell’s reported revenue of $108 million for its security-management and operating platforms, down 2 percent year-over-year. Earlier this week, Novell announced a new cloud security service to manage access, identity and compliance.

Novell’s SUSE Linux platform products revenue in the third quarter netted $36 million, a decline of 7 percent from the third quarter of 2009.

“As expected, depletion of the original Microsoft certificates this year makes for a challenging year-over-year comparison,” Russell said.

Novell has a multi-year agreement with Microsoft to resell Novell SUSE Linux Enterprise Server subscriptions.

While the third quarter was disappointing, Novell executives see opportunities ahead thanks to a recent Linux partnership with virtualization vendor VMware.

Through that deal, VMware will make SUSE Linux the default operating system for its vSphere technology.

“What that translates to from a competitive perspective is it really allows our operating system to play a much bigger role inside of those VMware shops for the customer and be very collaborative and cooperative inside of that environment,” Hovsepian said.

Sean Michael Kerner is a senior editor at InternetNews.com, the news service of Internet.com, the network for technology professionals.

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