Updated from 7:31 a.m. EST

Shares of

Novell

(NOVL)

fell after the company said it swung to a fourth-quarter profit Thursday on a nearly 5% jump in revenue but still failed to meet analysts' top-line estimates.

The stock was recently down 35 cents, or 4.9%, to $6.78 in early Friday trading.

The Waltham, Mass.-based Linux vendor earned $13.1 million, or 3 cents a share, in the fourth quarter. That reversed a loss of $109 million, or 29 cents a share, in the same period a year earlier, when the company incurred an income tax expense of $125.1 million.

Excluding charges, Novell said it earned $23 million, or 6 cents a share, in the fourth quarter, up from $19 million, or 5 cents a share, a year earlier. That was a penny higher than the consensus estimate gathered by Thomson First Call.

Revenue rose 4.9% to $300.7 million from $286.7 million a year earlier, and it declined a modest 1.3% from $304.6 million in the previous quarter. That fell short of the consensus estimate of $304.1 million for the fourth quarter, which ended Oct. 31.

New software license revenue declined 8.2% from a year ago to $64.7 million and rose 10% sequentially from $58.7 million in the third quarter.

Novell recognized $12 million in revenue from its SuSE Linux business in the fourth quarter -- flat sequentially and short of some analyst estimates. Revenue from Novell's flagship NetWare networking operating system software declined 12% year over year.

Novell was an early leader in networking software but NetWare sales have been shrinking for years as

Microsoft's

(MSFT) - Get Report

competing Windows platform has gained market share. As a result, Novell has made a handful of Linux acquisitions, culminating with SuSE Linux earlier this year.

Novell does not offer financial guidance, but said it expects NetWare revenue to continue to decline in 2005 and be offset by growth in other business lines. CFO Joe Tibbetts noted that industry analysts expect Linux growth of 30% to 35% in 2005; growth in identity management, another emphasis of Novell, to range from 14% to 16% in 2005; and information technology spending to grow 7%.

But on the cost side, Novell continues to expect to spend more on research and development as it proceeds on its transition from more mature NetWare products to growth products such as Linux. Analysts are expecting the company to post first-quarter revenue of $287 million and earnings of 4 cents a share.

Since the SuSE Linux deal, investors have viewed Novell's shares as one of only a few ways to play the growing open-source Linux wave in the stock market. But there also have been concerns of a looming price war between Novell and

Red Hat

(RHAT)

, the top Linux vendor and other alternative Linux investment vehicle.

Novell recently announced a deal to put its version of Linux on some servers made by

Dell

(DELL) - Get Report

, a move that could ratchet up the race against Red Hat.

"The momentum for Linux is building at Novell," CEO Jack Messman said Thursday on a postclose conference call. Messman said Novell boasts competitive advantages that should allow the company to become the leader in Linux in a short period of time by any metric.

But Novell has considerable catching up to do. Researcher IDC has estimated that Red Hat commanded about 70% of new Linux server license shipments from 2000 to 2002, while SuSE Linux trailed far behind with only a 20% share.

Though the company wants to become the Linux leader, Messman said that the real competition for Novell remains Microsoft. "Many people don't need the functionality or cost associated with Windows, but over time the functionality of

Novell's competing product will be on parity with Microsoft and obviously be much cheaper," Messman said.

Last week, Novell received a $536 million cash payment from Microsoft related to

the settlement of its suit over the impact of Microsoft's NT operating system on NetWare during the 1990s. After transaction costs and income tax payments, the settlement is expected to increase Novell's cash by $438 million.

In the same week that Novell settled the Microsoft suit, the company

slapped Microsoft with another antitrust suit related to Microsoft's effect on Novell's formerly owned WordPerfect suite of software. Microsoft has said that suit has no merit and that the claim had passed the statute of limitations.

Messman hinted that another lawsuit against rival

Sun Microsystems

(SUN) - Get Report

may also be on the horizon related to Sun's plans to make the next version of its operating system, Solaris 10, open-source and available for free. Messman noted that Solaris is "somewhat" built on Unix, which Novell owns. (Novell is already embroiled in a lawsuit with

SCO Group

(SCOX)

over Unix intellectual property rights.)