After a difficult few months, Novell Inc finished its financial year in a bullish mood with revenue up 6.3% in the fourth quarter, prompting new president for Europe Middle East and Africa, Thomas Francese, to declare the company re-born.
The Waltham, Massachusetts-based Linux and identity management vendor’s revenue was boosted by a 21.8m pound ($39m) contract with the UK’s National Health Service that Francese maintained is indicative of a change in attitude towards the company from customers.
We’re seeing a renaissance in interest in doing business with Novell, he said. When we go to see our customers they’re very interested in talking to companies that help them with transitional change. We’re seeing a re-birth in relevance around Novell. The Novell lights are back on.
After a difficult transitional period of its own, which led to minority shareholders questioning the company’s strategy in September, the NHS deal provided a significant fillip to Novell’s fourth quarter, helping to push revenue up to $320.3m, compared to $300.7m a year ago.
The significance of the NHS deal cannot be overstated. Chief financial officer, Joe Tibbetts, revealed that it added $20m to the revenue for the fourth quarter, without which Novell’s revenue would have been down on the same period in 2004.
Francese also maintained that the three-year agreement to provide the NHS with Novell Identity Manager for security and access control, Novell ZENworks for desktop management, Novell Open Enterprise Server to transition from NetWare to SUSE Linux Enterprise Server, and consulting services, is indicative of a new start for Novell.
The game has really changed, he said. It was quite motivating to see the technologists inside the NHS and our own consultants put something together that is very relevant and also serves the public.
The deal sees the NHS using Novell products across its entire infrastructure of more than 600,000 desktops as part of the ongoing Connecting for Health initiative and is expected to save the organization up to 75m pounds ($130m) over three years.
Novell chairman and CEO Jack Messman saw the fourth quarter as an example of the potential for Novell. We’re starting to see our strategy reflected in our results, he said. We began a transformation of our company two years ago, he added. While we have come to the end of the two year period, we still have much to do.
The transformation began with the acquisitions of SUSE Linux and Ximian, and continued with the restructuring of the company’s sales force in the Americas, and now EMEA, as well as the re-engineering of its products to support the open source operating system.
While many saw Novell’s Linux acquisitions as the re-birth of the company, Francese had a quick answer to the question of why it has taken the company time to translate its potential into renewed customer interest: It takes nine months to have a baby, he said.
SUSE was one step along the journey. The expansion that we have around the identity management side is another phase, he added. It’s good that you have a foundation to build on, and we have that.
Francese joined the company in October as part of a series of management changes that also saw Ron Hovsepian promoted to president and COO, and Jeffrey Jaffe appointed executive vice president and CTO.
EMEA has been particularly difficult for Novell due to the general economic malaise in Europe, and Messman added that he expects the region to continue to be problematic despite revenue growth of 8% for the full fiscal year, faster than North America (3%). Despite our success in EMEA this quarter, this region is a focus for management and we expect to see continued challenges there, he said.
There have also been significant changes further down the company hierarchy as it laid off a little over 10% of its workforce during the fourth quarter. That led to total restructuring charges of $38m in the fourth quarter, according to Tibbets, prompting a net loss of $5.0m, compared to net income of $15m in the fourth quarter of 2004.
For the full fiscal year, Novell reported revenue up 2.7% to $1.198bn from $1.166bn in 2004, with net income of $378m compared to of $31m in full year 2004. The net income figure was significantly boosted by the company’s $448m legal settlement with Microsoft Corp, however.
Nevertheless. there are reasons for increased optimism for the company. Its SUSE Linux Enterprise Server subscriptions totaled 65,000 in the fourth quarter, a significant improvement on 28,000 in the third quarter and 21,000 a year ago.
The company continues to tinker with how it presents Linux revenue but has decided that Linux platform revenue, including the Linux and Open Enterprise Server products, and associated services revenue, is the most comparable with its competitors.
That gave the company total Linux platform revenue of $61m in the fourth quarter, up 418%, including $46m from sales of OES, and $15m from other Linux products and services. Total Linux platform revenue for the fiscal year was $148m, up 278%. The company’s other major strategic focus, identity management, delivered revenue of $84m in the quarter, up 35%, and $258m in the full year, up 14%.
Looking ahead, Tibbets said that restructuring charges would reduce Novell’s revenue by between $40m and $50m in full fiscal year 2006, with revenue for the first quarter of the year expected to be between $260m and $270m.