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Novell Inc. Reports Operating Results (10-Q)

September 04, 2009 | About:

Novell Inc. (NOVL) filed Quarterly Report for the period ended 2009-07-31.

Novell Inc. delivers infrastructure software for the Open Enterprise. Novell is a leader in enterprise-wide operating systems based on Linux and open source and provides the enterprise management services required to operate mixed IT environments. Novell helps customers minimize cost complexity and risk allowing them to focus on innovation and growth. Novell Inc. has a market cap of $1.5 billion; its shares were traded at around $4.35 with a P/E ratio of 18.1 and P/S ratio of 1.6.

Highlight of Business Operations:

In the third quarter and first nine months of fiscal 2009, total revenue decreased 12% and 9%, compared to the respective prior year periods, similar to many companies in the software industry. Foreign currency exchange rate fluctuations unfavorably impacted revenue by 3% and 2% in the third quarter and first nine months of fiscal 2009, compared to the respective prior year periods. The lower total revenue for the third quarter and first nine months of fiscal 2009 reflected lower services revenue of 30% and 32%, respectively, and lower product revenue of 9% and 5%, respectively, compared to the prior year periods. The lower services revenue is due in part to our strategic initiative of focusing our services business on driving more profitable product revenue while leveraging our services capabilities internally and through third-party partners. The lower product revenue for both the third quarter and first nine months of fiscal 2009, compared to the prior year periods, was primarily a result of lower software licenses revenue, which declined across all segments, except for the Open Platform Solutions business unit segment, for which software licenses revenue is immaterial. The lower software licenses revenue reflected the impact of the slowing economy, which affected our industry more severely in fiscal 2009 than in fiscal 2008. In general, despite challenges posed by the current economic climate, maintenance and subscriptions revenue remained relatively steady due primarily to consistent renewal rates.

In the third quarter and first nine months of fiscal 2009, total services revenue decreased 30% and 32%, compared to the respective prior year periods. Our services offerings are focused on supporting product sales, not generating stand-alone revenue or profits, which is in line with our strategic initiative of focusing our services business on driving more profitable product revenue while leveraging our services capabilities internally and through third-party partners. Our prior strategy positioned our services offerings less as an enabler of software sales, and more as an independent and unrelated direct revenue initiative. We shifted our services strategy and positioning in fiscal 2008, with an intended gradual implementation. As a result of this, we have seen a general decline in our services revenue in the third quarter and first nine months of fiscal 2009 compared to the respective prior year periods. Services revenues were also impacted by the weak economy as customers reduced their discretionary spending.

Despite the decreasing revenue, our operating margins continue to improve, reflecting the positive impacts of recent restructuring and other cost cutting initiatives. For the third quarter and first nine months of fiscal 2009, we reported operating margins of 10% and 8%, respectively, which compares to 0% and 2% for the third quarter and first nine months of fiscal 2008, respectively.

Revenue from maintenance and subscriptions increased in the third quarter and first nine months of fiscal 2009 compared to the prior year periods primarily due to increased revenue from Linux Platform Products, which increased $7.0 million, or 22%, in the third quarter of fiscal 2009, and $21.1 million, or 24%, in the first nine months of fiscal 2009, compared to the respective prior year periods. Revenue from maintenance and subscriptions also benefited from our acquisitions. During the third quarter of fiscal 2009, our acquisition of Managed Objects contributed $1.6 million of incremental maintenance and subscriptions revenue. For the first nine months of fiscal 2009, incremental maintenance and subscriptions revenue in the first year after acquiring PlateSpin and from Managed Objects accounted for new revenue of $5.9 million. In general, despite challenges posed by the current economic climate, maintenance and subscriptions revenue continued at relatively steady rates due primarily to consistent renewal rates.

Foreign currency exchange rate fluctuations, as measured by using prior period foreign currency exchange rates on non-U.S. dollar denominated revenue, negatively impacted total net revenue by $6.1 million, or 3%, and $15.2 million, or 2%, during the third quarter and first nine months of fiscal 2009, respectively.

Revenue from our Identity and Security Management segment decreased in the first nine months of fiscal 2009 compared to the prior year period, primarily due to the weak economy. Identity, Access and Compliance Management product revenue decreased $7.2 million, or 8%, compared to the first nine months of fiscal 2008, due in part to invoicing declines of 8% in the first nine months of fiscal 2009 compared to the prior year period. Longer sales cycles and decreased contract duration also negatively impacted revenue.

Read the The complete ReportNOVL is in the portfolios of HOTCHKIS & WILEY of HOTCHKIS & WILEY Capital Management LLC.

Rating: 1.5/5 (2 votes)

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