Novell Posts $29 Million Loss

While Novell executives bemoaned the lack of profitability for the quarter, the company narrowed its losses considerably from the same period a year ago, when it posted a loss of $173 million on $274 million in revenue.

Overall, the company's revenue grew 6 percent from the first quarter and 1 percent on year-over-year basis, but "we're not pleased with the overall level of sales," said Novell CEO Jack Messman during a conference call Thursday, noting that the expected bounce-back in technology spending during the first half of 2003 hasn't taken hold.

"We've not achieved the improvements we planned. Being up modestly is not a big victory," Messman said. "The IT market continues to be weak, and growth in new [solutions and products] is being offset by declines in mature products."

During the quarter, Novell's software licenses and maintenance grew by 1 percent. The company's Nsure identity management and eXtend Web services platform revenue increased 36 percent to $23 million. Nterprise offerings, which include NetWare, declined 3 percent year over year to $142 million. Novell grew its eDirectory seats by almost 4,000 in the quarter for a total of 1.4 billion installed seats in the marketplace, he said.

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The company scored major contracts during the quarter for its Nsure identity management solution, with customers including the State of Texas, J.P. Morgan Chase, Telecom New Zealand and Star Alliance, yet too many deals remain in the pipeline as customers delay IT spending, Messman said. Novell Consulting, for example, is working with Matsui in Japan on a significant Nsure directory integration, single sign-on and use provisioning solution.

Messman said IT consulting for the quarter was up 1.1 percent sequentially but down 13 percent year over year.

"The selling cycle is long and new adoption cycle is slow," he said. "The market improvements we were counting on haven't yet taken hold. "

Messman poked at the company's "unacceptable" operating loss for the quarter and pledged to cut sales, marketing and advertising from the budget because of stagnant IT spending. "We anticipated IT would pick up in the second half, and now it isn't occurring, so we must reduce our planned spending," he said.

Novell expects strong growth on its Nsure identity management solutions, recently launched Zenworks resources management solution and forthcoming eXtend 5.0 Web services upgrade slated for release this fall, Messman said.

Moreover, the company is counting on the launch of NetWare 6.5 this summer, as well as planned uptake of Novell's free five-user Small Business Suite Starter Pack, to drive growth in the small-business market during the third fiscal quarter.

And, "A little recovery in the IT market would help," Messman said.