Novell Jumps 21% on News of SUSE Linux Deal

However, Novell executives indicated on the conference call that they believe SCO's legal challenge to Linux and the open source movement has little merit. In addition to its lawsuit against IBM, SCO has asked Linux users to pay license fees and threatened to sue Linux customers.

"We're not holding back because of SCO's undisputed or unsubstantiated claims," Messman said.

"Our customers are still demanding our products. They don't care about what SCO is saying so far," added Richard Seibt, CEO of SUSE Linux. "There is no decrease in demand. ... Because of the merger with Novell, I expect even higher demand in the near future."

As for Microsoft, which has cited Linux as a threat to its dominance on the operating system and desktop, the Novell news represents a "competitive threat," though that's in the early stages, said Drake Johnstone, an analyst with Davenport & Co., who has a buy rating on Novell. His firm hasn't done any banking with the company.

Johnstone said the deal also should help stabilize Novel's Netware revenue, which has been declining.

Netware, Novell's core product, was once the leading network operating system before being stepped on by Microsoft, the world's largest software maker, America's Growth Capital analyst Phil Rueppel wrote in a note initiating coverage of Novell last month. At that time, Rueppel said wrote that early successes in Linux "could place Novell at the top of only a handful of vendors who will be able to take advantage of what is expected to be an explosive market opportunity."

Rueppel does not have a rating on Novell but estimated its value at $6.66 a share and said he believes the company is poised to prosper over the next three to five years. His firm hasn't done any banking business with the company.