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TechWeek: Less Than Meets the Eye

I don't always agree with Rick Sherlund, but Goldman's high-profile software analyst had the best headline I've seen on a sell-side note in some time. Speaking of Thursday's surprise announcement of an alliance between Microsoft (MSFT - Get Report) and Novell (NOVL), he wrote: "Calm Down, Not That Big a Deal."

Sherlund has it right. Interesting as the deal is, it changes almost nothing from the point of view of a Microsoft investor. Indeed, it would be surprising if it had any material impact at all on the software giant's income statement. (Goldman Sachs has an investment banking relationship with Microsoft, but not with Novell.)

The deal is obviously material to Novell, and the stock got a terrific bump when the news leaked out ahead of the announcement. But will it attract new money to the stock?

Not mine, says Daniel Morgan, who helps manage $5.5 billion for Synovus Investment Advisors. "Novell still has a long road back," he says. Long is right. Once a major player in software -- its NetWare network operating system was a market leader in the 1990s -- Novell has seen a steady erosion of sales in its core business.

And the Linux market, which it entered by buying a European software developer a few years ago, still represents a very small percentage of its total revenue. And its market share is dwarfed by Red Hat (RHAT). Even after Thursday's rally, Novell's stock is trading at less than $7 a share; six years ago it sold for $44.70
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