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Novell's Big Linux Year

UPDATED: What a difference a Linux strategy can make.

A year after launching its Linux support with Netware 7 and six months after acquiring SUSE Linux, networking software maker Novell is seeing the fruits of its strategy pan out.

The company said net income in its second fiscal quarter was $10.4 million. But one-time charges brought its net loss to $15.3 million (4 cents per share), about half of its net loss of $29 million a year ago (8 cents per share). Revenues rose by 6 percent to $293 million in the period ending April 30th.

Though analysts were expecting stronger results, the difference from a year ago is stark for Novell, whose proprietary, Unix-based Netware products were being eroded in part by the advance of Linux at the time.

Now, with the addition of SUSE as well as desktop specialist Ximian, Novell counts over 10,000 developers that have signed up for its Linux support programs. The company recently announced that its DeveloperNet program increased its membership by over 25 percent with the addition of 10,184 new members over the last six months. At the beginning of 2003, a Novell survey revealed that only 15 percent of its channel partners supported Linux in their business. Today, that number is 55 percent.

Stacey Quandt, principal analyst at Quandt Analytics, said Novell's current focus and direction are a good thing for Novell stakeholders and shareholders, and for Linux as well.

"The implication is that increased ISV support for Linux, coupled with the strategy of porting NetWare 7 services to Linux, [means] Novell enables an easier transition path to Linux," Quandt told internetnews.com.

"However, these initiatives are based on business logic and not open source religion. Linux exceeds NetWare in ISV and developer support," she added.

"Linux is a driver of Unix market consolidation and represents a volume operating system alternative to Microsoft Windows."

Red Monk analyst Stephen O'Grady said Novell's strategy has positive implications for the wider open source community.

"I think the numbers support the conclusion that Novell's embrace of Linux specifically and open source in general are beginning to pay dividends, both in terms of developer support and channel opportunities," O'Grady told internetnews.com.

"Obviously this is good news for Novell, but it also is beneficial to the open source community in general. With Novell having donated Connector, iFolder and YAST to the community, there are new opportunities being opened up for open source beyond Novell's boundaries."

Jon "Maddog" Hall, the executive director of Linux advocacy group Linux International, said Novell also adds necessary competition to the Linux marketplace.

"The short answer is that Novell has the money, channels and connections to make SUSE and Ximian a good, strong second source of Linux along with Red Hat," Hall told internetnews.com. "Competition is good. It keeps prices down, makes vendors responsive to customers."

Hall, a long time veteran of the Free and Open Source Software movement (sometimes referred to collectively as FOSS), said he hopes that a company with a proprietary past such as Novell will truly embrace what FOSS is all about.

"I do hope, and expect, that Novell will take the time to truly understand 'Free and Open Source Software,' and will use this opportunity to help their channel partner developers to understand this new method of developing software, rather than try to take FOSS and make it proprietary," Hall said.

Novell spokesperson Bruce Lowry said the number of developers now signed on speaks for itself. He said developers will only join a program if they see a benefit.

"Our approach has been very much based on leaving choice to customers, rather than forcing a migration on them." Lowry said.

"So, to be honest, we aren't expecting a large number of existing Novell customers to suddenly drop NetWare or other Novell solutions and move to Linux. But to the extent customers are making new infrastructure choices, and those choices include moving to Linux, Novell customers can now do that without leaving Novell."

The bottom line, he added, is that developer support is critical in the open source environment, "and we're winning people over with our constructive engagement, including our open sourcing of some pretty important Novell technologies - YaST, iFolder and the Evolution Connector," Lowry said.

Updates earnings to include overall charges and net income for second quarter.



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