Software veteran Novell (NASDAQ:NOVL) is set to report earnings for third-quarter 2006 after the closing bell Tuesday afternoon. We're here to check up on the company's past performance, and get a feel for what to expect tomorrow night.

What analysts say:

  • Buy, sell, or waffle? Thirteen analysts follow Novell these days. Three say to buy it, one says to sell, and the other nine are holding.
  • Revenues. Analysts expect, on average, sales to decline 16.5% from the year-ago period, to $242.3 million.
  • Earnings. Profits, however, are supposed to hold steady at exactly the figure seen last year, $0.03 per diluted share.

What management says:
Looking over Novell's press release archives, the volume of releases about SUSE Linux happenings is remarkable, while NetWare hasn't been mentioned in a headline since May 2004. Even then, the news reported was about Novell making it easier for NetWare users to move onto Linux platforms.

If the names NetWare and SUSE don't ring any bells, you can think of them as the last and next generations of server operating systems, respectively. NetWare was huge in the 1990s, and Novell still has to support a very large -- and enthusiastic -- installed user base on that platform, but few businesses buy new NetWare systems anymore. SUSE Linux is like a cousin to the better-known Red Hat (NASDAQ:RHAT) Linux operating systems, Unix-like platforms built around the open-source Linux kernel with mostly free and open tools.

The company is proud of its Linux product line, and rightly so judging from the number of industry awards it has garnered lately. It's clearly the real future of the company. At the same time, management is careful to move slowly, so as not to anger its traditional bread-and-butter NetWare customer base.

What management does:
After hitting rock bottom around this time last year, margins have rebounded nicely across the board. That inflection point came a couple of months after a management shakeup, and should be the result of new leadership taking over the reins.

Margins %

1/05

4/05

7/05

10/05

1/06

4/06

Gross

62.5

61.7

61

63.1

63.5

64.2

Op.

5.0

3.7

2.7

3.7

3.1

4.6

Net

4.1

3.5

3.1

4.3

4.3

4.5

All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
Here we are, two months after another shuffle at the top, and I'm eager to see the difference a new CEO and CFO can make. I've had a few choice comments for Novell in the past, focused around the company moving too slowly to get off the old hobby horse NetWare has become. Ronald Hovsepian hasn't gotten a complete quarter under his belt as CEO yet, but this report should at least get us a good feel for where the company is planning to go from here.

Of course, I'd love to hear management announcing that NetWare support has been spun off or sold to someone like IBM (NYSE:IBM) or Accenture (NYSE:ACN), companies that thrive on supporting aging products that require little new development. But if that ever happens, I'd expect it to be outside of an earnings report. So this time, all I'm asking for is a stop to the two-year slide in sales and continued widening of the margins. I'd expect SUSE Linux to fuel all of that, as NetWare continues to fade into the annals of computing history.

Competitors:

  • Red Hat
  • Sun Microsystems (NASDAQ:SUNW)
  • IBM
  • Hewlett-Packard (NYSE:HPQ)
  • Microsoft (NASDAQ:MSFT)

Microsoft and Accenture are both Inside Value recommendations. Try a 30-day free trial to see the value Philip Durell found in these companies and many others.

Fool contributor Anders Bylund holds no position in any of the companies discussed here. You can check out Anders' holdings if you like. Foolish disclosure is always one step ahead.