Open Sources | Rodrigues & Urlocker » Novell profitable, but not because of Linux

December 06, 2006 | Comments: (0)

Novell profitable, but not because of Linux

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Novell stalls, Red Hat grows

Its Faustian patent pacts aside, Novell has bigger problems to deal with. Namely, the ability to drive net new revenues in its Linux business. The company reported results today, and they continue to disappoint.

The good news? Novell is back in Profit Land.

The bad news? Linux isn't helping the company much.

$13 million in Linux-related revenues this quarter. That's it. (And I concur with Matthew that this doesn't seem like a 32% bump from $15 million last quarter.)

Novell must do better. Red Hat announced today that it's kicking tail in Spain (one of my company's top markets, too, btw - open source is alive and well in Spain). I wouldn't be surprised if Red Hat did as much Linux revenue in Spain as Novell did worldwide (though I have absolutely no data to support this guess). Novell must do much, much better.

If you're a Novell employee, one particular part of the earnings announcement is worrying. Jason Maynard of CSFB highlights:

While we were expecting Novell to detail a new plan to lower the cost structure in 2007, the company instead announced that it would be increasing expenses by $20-25M in the year, as part of a plan to lower expenses in 2008. The plan entails creating redundant positions in lower cost geographies, then reducing legacy positions once new hires get fully ramped. Management chose this approach because it appears it cannot eliminate anymore employees without sacrificing revenue.

Your job that you thought was safe? Not safe.

As for Novell and the apparent belief that it just can't cut heads without cutting revenue, let me give Novell some guidance on this as a former employee: yes, you can. You have all sorts of "fat" that can be trimmed from the company. On paper, you need project managers, product managers, support engineers, etc. to handle all the work you have. In practice, you have lots of Novell lifers that punch in but long ago checked out and don't deliver.

For Novell to be the aggressive, efficient machine that it must be to compete in open source, it must do more with less. Moving jobs to lower-cost geographies is a start, but it doesn't tackle the real problem: too many people doing too little.

You have some exceptional people within Novell - put more on their shoulders and rid yourself of those that come into work each day like they're collecting pensions, not paychecks. You're not doing such people any long-term favors by continuing to dole out inflated paychecks to them. Really. Let your performers perform. Let your laggards...lag. Somewhere else.

Posted by Matt Asay on December 6, 2006 10:20 AM

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