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Novell Beats Estimates

The company swings to a quarterly profit.

SAN FRANCISCO -- While reaffirming full-year guidance Thursday, Novell (NOVL) said it has been laying the groundwork for future growth.

The Waltham, Mass., software company swung to a second-quarter profit Thursday, beating analysts' estimates and reaffirming that it expects full-year revenue of $940 million to $970 million.

Revenue grew 1.4% to $235.7 million from $232.4 million in the same quarter of last year. Analysts polled by Thomson Reuters were expecting a top line of $233.3 million.

While revenue from licenses, maintenance and subscriptions rose, services revenue fell 19% to $41.1 million as Novell transfers its lower-margin services business to partners, executives said on the conference call.

Linux product revenue was up 28% year over year to $30.5 million. Zenworks systems management products grew 15% to $40.95 million. Identity and security management software revenue rose 6% year over year to $30.7 million.

Workgroup product revenue, which includes Open Enterprise Server and Netware -- products that have struggled in recent years -- fell 1% to $92.4 million. But workgroup invoicing rose 6% year over year, CFO Dana Russell said. "This was first quarter where we've seen increases in bookings for OES and Netware."

Total product invoicing was up 10% from a year ago, Russell said.

A Novell strategy for growing revenue is through stronger ties to industry partners. The company deepened its relationships with three technology giants during the quarter, CEO Ron Hovsepian said on the conference call. Novell's SUSE Linux software became the preferred server software for


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will preload SUSE Linux software on a notebook model for the education market and has agreed to migrate its identity-management customers to Novell's identity software. Hovsepian said he expects the agreement to contribute to the growth of THE identity business as H-P customers migrate during the next 12 to 24 months.

Novell also expanded its collaboration agreement with


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, Hovsepian said.

During the quarter, the bottom line moved to a profit of $5.9 million, or 2 cents a share, from a loss of $2.9 million, or a penny a share, in the year-ago period.

Excluding special items, EPS was 6 cents, a penny better than analysts' expectations.

Shares were up 9 cents, or 1.3%, to $6.80 in extended trading.

Gross margin was 74%, vs. 72% one year ago. Total deferred revenue at the end of the quarter was flat year over year, at $702 million.

Exchange rates added $8 million to revenue and $9 million to expenses, hurting income from operations by $1 million year over year, the company reported.

The company provides open-source software, competing against

Red Hat

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, which is expected to report in June on its fiscal first quarter.