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Cut to the Chase, Novell!

By Anders Bylund – Updated Apr 6, 2017 at 12:12AM

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Novell is taking the long, slow, and painful road to becoming a Linux powerhouse. Cut to the chase already!

Poor Novell (NASDAQ:NOVL). Just when the company seemed to be getting its stuff together, it gives us a report with nearly no reasons for optimism.

I've been on Novell's case for years about losing the NetWare albatross and moving on to greener Linux pastures, where there's growth instead of shrinkage and modern technology all around. Well, NetWare and its successor, the Open Enterprise Server (OES) platform, have indeed diminished in importance to Novell. Neither product even rated a mention in Novell's fourth-quarter report and earnings call with analysts.

The workgroup division, where OES and NetWare products are found, reported a 15% revenue fall compared to last year's fourth quarter, while the pure-play Linux division grew 14%. The workgroup sector still sports the highest sales among Novell's four reportable business segments, but the Linux division is the only place to see any growth these days.

Overall, the Linux-based strength did nothing to pull Novell out of a multi-year slump. Total revenue fell 12% to $216 million. Non-GAAP earnings, which backed out $279 million of goodwill impairment, did improve from $0.06 per share to $0.11 per share, year over year. That's a bright spot in an otherwise bleak picture. Novell's aging product portfolio, excepting its Linux operation, have been shrinking steadily for years, and that trend shows no sign of stopping.

Novell is working hard to promote its products through partnerships with respectable multinational businesses like Affiliated Computer Services (NYSE:ACS), Dell (NASDAQ:DELL), and SAP (NYSE:SAP), and Microsoft (NASDAQ:MSFT) extended another $100 million program of co-marketing Novell's Linux platform after the old $240 million agreement ran out. And the company is becoming a major force in virtualization by shipping its software as prepackaged software appliances for virtual servers from VMware (NYSE:VMW) and others.

But Novell and its investors would have been much happier if its Linux department was separated from all that other baggage and allowed to grow and flourish as a stand-alone business. Really, guys -- sell the OES division for a song to someone like IBM (NYSE:IBM) and stop chaining yourselves to that cast-iron anchor. You'll thank me in two years or less.

Fool contributor Anders Bylund holds no position in any of the companies discussed here. VMware is a Motley Fool Rule Breakers recommendation. Dell and Microsoft are Motley Fool Inside Value recommendations. Motley Fool Options has recommended a diagonal call strategy on Microsoft. Try any of our Foolish newsletters today, free for 30 days. You can check out Anders' holdings and a concise bio if you like, and The Motley Fool is investors writing for investors.

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Microsoft Corporation Stock Quote
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International Business Machines Corporation
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VMware, Inc. Stock Quote
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