Profit Grows at Novell

But the company's forecast comes in light.
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Updated from 5:17 p.m. EDT

Improved sales of Linux-related products helped

Novell

(NOVL)

beat Wall Street's third-quarter earnings estimates, but revenue slipped year over year and is likely to slip again in the current quarter.

The company also said Tuesday that it has begun a voluntary review of its stock-based compensation policies but released few details. Any adjustments that have to be made will be reflected in the form 10-Q Novell will file for the July quarter.

Decreasing sales of older products have weighed on Novell for several years, and while investors were pleased to see a

new CEO take the helm earlier this year, the July quarter did not show the improvement analysts had hoped for.

In after-hours trading on Instinet, shares were off 4 cents to $6.74.

Novell, which sells a variety of networking software and its own version of the Linux operating system, posted a profit of $11.6 million, or 3 cents a share, up from $2.1 million, or break-even EPS, a year ago.

Revenue slipped 4% to $241.4 million.

Excluding the expense of stock options, severance costs, and other items, Novell earned a profit of $20 million, or 5 cents a share. Analysts polled by Thomson First Call were looking for EPS of 3 cents on sales of $242.3 million, on the same basis.

Novell's forecast for the fourth quarter calls for sales to range from $246 million to $256 million, compared with First Call consensus of $261 million. Non-GAAP EPS, which excludes 3 cents a share for the cost of options as well as other items, will likely be 4 cents a share, which falls a penny short of Wall Street's expectations.

In the fourth quarter of last year, Novell posted revenue of $320.3 million, well above the high end of the company's estimate for the current quarter. Even if $32.7 million in revenue from the now-sold

Celerant

consulting business and an unusual $20 million deal are backed out, revenue will still decline year over year.

The company's Linux platform revenues grew by 30% to $11.6 million, representing just 4.8% of total revenue. Hoping to speed its growth, the company plans to reconfigure its marketing efforts to emphasis Linux, Chief Marketing Officer John Dragoon said in an interview earlier this month.

In the past, he said, Novell's marketing efforts "tried to accommodate all of our products. People had a difficult time understanding what we did," he said.

Also increasing is the company's identity and access management business, which grew by 46% to $26 million.

Novell said it's unable to predict when the options review will be completed, and it is possible that Novell may not file its 10-Q on a timely basis.

This review may result in the need to record noncash stock compensation charges and related tax effects, the company said.