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Novell Slides On Weak Sales

Earnings are in line but revenue misses when currency effects are excluded. Also, deferred revenue falls.

Updated from May 24

Novell

(NOVL)

boosted second-quarter revenue by 6.5% year over year and cut its loss per share in half, the software vendor announced after the closing bell on Monday.

Novell shares were recently off 58 cents, or 5.8%, to $9.39.

According to generally accepted accounting principles, the company lost $15.4 million, or 4 cents a share, on sales of $294 million. Excluding a $26 million redemption of preferred stock, restructuring charges of $5 million and other items, the company earned $14 million, or 3 cents per share.

Novell does not give guidance, but analysts polled by Thomson First Call were expecting a profit of 3 cents per share on a pro forma basis on sales of $287.1 million. Without a $12 million boost from the weak dollar, Novell would not have met revenue expectations.

Cash flow from operations during the quarter was negative $28 million, primarily because of an increase in current accounts receivable, and this was one reason investors were not happy with the report. Deferred revenue, a key metric for software companies, was off year over year, dropping to $60.3 million from $64.5 million. Also, days sales outstanding increased sequentially from 60 days to 67 days.

Novell was an early leader in networking software and sales of Netware, its flagship product, have been the company's backbone.

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In 1995, revenue peaked at a bit more than $2 billion, including about $1 billion in Netware sales. But as networking developed and Windows gained share in the space, the company has floundered. In fiscal 2003, total revenue was $1.1 billion, including just $245 million in Netware sales.

In the second quarter, Netware revenue declined 2% year over year, compared with a drop of 12% in the prior year, adjusting for changes in the value of the dollar. "We believe this slowing of the rate of NetWare-related revenue decline reflects a favorable response from our customers to our Linux strategy," CEO Jack L. Messman said in a prepared statement.

Novell has made numerous acquisitions as it attempted to right itself, including SUSE Linux, with which it hopes to compete with

Red Hat

(RHAT)

in the

burgeoning Linux market. In March, Novell and

Hewlett-Packard

(HPQ) - Get Report

signed a deal to put Novell's version of Linux on H-P desktops in the second half of the year.