NOVL » Topics » Overview

This excerpt taken from the NOVL 10-Q filed Jun 9, 2009.

Overview

We develop, sell and install enterprise-quality software that is positioned in the operating systems and infrastructure software layers of the information technology (“IT”) industry. We develop and deliver Linux operating system software for the full range of computers from desktops to servers. In addition, we provide a portfolio of integrated IT management software for systems, identity and security management for both Linux and mixed-platform environments. Our 26 years of experience serving the full range of enterprise sizes, combined with the quality and flexibility of our open-platform software technology, offers customers an IT infrastructure that is responsive to the cost pressures and the expanding IT initiatives that are characteristic of today’s business environment.

In addition to our technology offerings, within each of our business unit segments we offer a worldwide network of service personnel to help our customers and third-party partners best utilize our software. We also have partnerships with application providers, hardware and software vendors, and consultants and systems integrators. In this way we can offer a full solution to our customers.

We are organized into four business unit segments, which are Open Platform Solutions, Identity and Security Management, Systems and Resource Management, and Workgroup. Below is a brief update on the revenue results for the second quarter and first six months of fiscal 2009 for each of our business unit segments:

 

 

 

Within our Open Platform Solutions business unit segment, Linux and open source products remain an important growth business. We are using our Open Platform Solutions business segment as a platform for acquiring new customers to which we can sell our other complementary cross-platform identity and management products and services. Revenue from our Linux Platform Products category within our Open Platform Solutions business unit segment increased 25% in the second quarter of fiscal 2009 compared to the prior year period. This product revenue increase was partially offset by lower services revenue of 11%, such that total revenue from our Open Platform Solutions business unit segment increased 18% in the second quarter of fiscal 2009 compared to the prior year period.

Revenue from our Linux Platform Products category within our Open Platform Solutions business unit segment increased 24% in the first six months of fiscal 2009 compared to the prior year period. This product revenue increase was partially offset by lower services revenue of 17%, such that total revenue from our Open Platform Solutions business unit segment increased 15% in the first six months of fiscal 2009 compared to the prior year period.

 

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NOVELL, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS – (Continued)

Overview (Continued)

 

 

 

Our Identity and Security Management business unit segment offers products that we believe deliver a complete, integrated solution in the areas of security, compliance, and governance issues. Within this segment, revenue from our Identity, Access and Compliance Management products increased 2% in the second quarter of fiscal 2009 compared to the prior year period. In addition, services revenue was lower by 45%, such that total revenue from our Identity and Security Management business unit segment decreased 16% in the second quarter of fiscal 2009 compared to the prior year period.

Revenue from our Identity, Access and Compliance Management products decreased 3% in the first six months of fiscal 2009 compared to the prior year period. In addition, services revenue was lower by 40%, such that total revenue from our Identity and Security Management business unit segment decreased 18% in the first six months of fiscal 2009 compared to the prior year period.

 

 

 

Our Systems and Resource Management business unit segment strategy is to provide a complete “desktop to data center” offering, with virtualization for both Linux and mixed-source environments. Systems and Resource Management product revenue decreased 2% in the second quarter of fiscal 2009 compared to the prior year period. In addition, services revenue was lower by 10%, such that total revenue from our Systems and Resource Management business unit segment decreased 3% in the second quarter of fiscal 2009 compared to the prior year period. In the second quarter of fiscal 2009, total business unit segment revenue was higher by 8%, compared to the prior year period, as a result of our acquisitions of Managed Object Solutions, Inc. (“Managed Objects”) which we acquired on November 13, 2008 and PlateSpin Ltd. (“PlateSpin”) which we acquired on March 26, 2008.

Systems and Resource Management product revenue increased 3% in the first six months of fiscal 2009 compared to the prior year period. The total product revenue increase was partially offset by lower services revenue of 14% in the first six months of fiscal 2009 compared to the prior year period. Total revenue from our Systems and Resource Management business unit segment increased 1% in the first six months of fiscal 2009 compared to the prior year period. In the first six months of fiscal 2009 total business unit segment revenue was higher by 12% compared to the prior year period as a result of our Managed Objects and PlateSpin acquisitions.

 

 

 

Our Workgroup business unit segment is an important source of cash flow and provides us with the potential opportunity to sell additional products and services. Our revenue from Workgroup products decreased 14% in the second quarter of fiscal 2009 compared to the prior year period. In addition, services revenue was lower by 39%, such that total revenue from our Workgroup business unit segment decreased 17% in the second quarter of fiscal 2009 compared to the prior year period.

Our revenue from Workgroup products decreased 12% in the first six months of fiscal 2009 compared to the prior year period. In addition, services revenue was lower by 39%, such that total revenue from our Workgroup business unit segment decreased 15% in the first six months of fiscal 2009 compared to the prior year period.

Our services offerings are focused on supporting product sales, not generating stand-alone revenue or profits, which is in line with our strategic initiative of focusing our services business on driving more profitable product revenue while leveraging our services capabilities internally and through third-party partners. Our prior strategy positioned our services offerings less as an enablement of software sales, and more as an independent and unrelated direct revenue initiative. We shifted our services strategy and positioning in fiscal 2008, with gradual implementation. As a result of this, we have seen a general decline in our services revenue. Total product revenue was down 3% and services revenue was down 33%, resulting in a net decrease in total revenue of 9% in the second quarter of fiscal 2009 compared to the prior year period. Foreign currency exchange rate fluctuations unfavorably impacted revenue by 3% during the second quarter of fiscal 2009 compared to the prior year period. Our Managed Objects and PlateSpin acquisitions resulted in higher revenue of 2% in the second quarter of fiscal 2009 compared to the prior year period.

In the first six months of fiscal 2009, total product revenue was down 3% and services revenue was down 32%, resulting in a net decrease in total revenue of 8% compared to the prior year period. Foreign currency exchange rate fluctuations unfavorably impacted revenue by 2% in the first six months of fiscal 2009 compared to the prior year period. Our Managed Objects and PlateSpin acquisitions resulted in higher revenue of 2% in the first six months of fiscal 2009 compared to the prior year period.

Because much of the revenue we invoice is deferred and recognized over time, we consider invoicing, or bookings, to be a key indicator of current sales performance and future revenue performance. Overall invoicing was lower in all of our business unit segments, except for the Open Platform Solutions business unit segment, for the second quarter of fiscal 2009 and lower in all of our

 

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NOVELL, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS – (Continued)

Overview (Continued)

 

business unit segments for the first six months of fiscal 2009, compared to the respective prior year periods, largely as a result of the weak economy as customers focused on capital conservation and expense management. These factors have led to smaller or delayed projects and extended sales cycles for our customers. While we expect these trends to continue in the near term, the fundamental markets that we serve and the value we bring to those markets remain attractive. We believe that the current customer focus on reducing cost, complexity and risk is aligned with our overall value proposition. Additionally, the recent financial turmoil demands stricter requirements for regulation and audit, creating the potential for expanded opportunities for certain of our products.

During the second quarter and first six months of fiscal 2009, we recorded net restructuring expenses of $7.2 million and $15.3 million, respectively, which were primarily a completion of our restructuring plan that began in the fourth quarter of fiscal 2006. That plan was related to our strategy to implement a comprehensive transformation of our business and to achieve competitive operating margins through four main initiatives: 1) improving our sales model and sales staff specialization; 2) integrating our product development approach and balancing between on and offshore development locations; 3) improving our administrative and support functions; and 4) transforming our services business to be more efficient and product focused.

This excerpt taken from the NOVL 10-Q filed Mar 11, 2009.

Overview

We develop, sell and install enterprise-quality software that is positioned in the operating systems and infrastructure software layers of the information technology (“IT”) industry. We develop and deliver Linux operating system software for the full range of computers from desktops to servers. In addition, we provide a portfolio of integrated IT management software for systems, identity and security management for both Linux and mixed-platform environments. Our 26 years of experience serving the full range of enterprise sizes, combined with the cost/effectiveness, quality and flexibility of our open-platform software technology, offers customers an IT infrastructure that is responsive to the cost pressures and the expanding IT initiatives that are characteristic of today’s business environment.

In addition to our technology offerings, within each of our business unit segments we offer a worldwide network of service personnel to help our customers and third-party partners best utilize our software. We also have partnerships with application providers, hardware and software vendors, and consultants and systems integrators. In this way we can offer a full solution to our customers.

We are organized into four business unit segments, which are Open Platform Solutions, Identity and Security Management, Systems and Resource Management, and Workgroup. Below is a brief update on the revenue results for the first quarter of fiscal 2009 for each of our business unit segments:

 

 

 

Within our Open Platform Solutions business unit segment, Linux and open source products remain an important growth business. While our goal is to operate our Open Platform Solutions business segment profitably, we are using it as a platform for acquiring new customers to which we can sell our other complementary cross-platform identity and management products and services. Revenue from our Linux Platform Products increased 24% in the first quarter of fiscal 2009 compared to the first quarter of fiscal 2008. This product revenue increase was partially offset by lower services revenue of 23%, such that total revenue from our Open Platform Solutions business unit segment increased 13% in the first quarter of fiscal 2009 compared to the first quarter of fiscal 2008.

 

 

 

Our Identity and Security Management business unit segment offers products that we believe deliver a complete, integrated solution in the areas of security, compliance, and governance issues. Within this segment, revenue from our Identity, Access and Compliance Management (formerly called Identity and Access Management) products decreased 8% in the first quarter of fiscal 2009 compared to the first quarter of fiscal 2008. In addition, services revenue was lower by 34%, such that total revenue from our Identity and Security Management business unit segment decreased 19% in the first quarter of fiscal 2009 compared to the first quarter of fiscal 2008.

 

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NOVELL, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS – (Continued)

Overview (Continued)

 

 

 

Our Systems and Resource Management business unit segment strategy is to provide a complete “desktop to data center” offering, with leadership in virtualization for both Linux and mixed-source environments. Systems and Resource Management product revenue increased 9% in the first quarter of fiscal 2009 compared to the first quarter of fiscal 2008. The total product revenue increase was partially offset by lower services revenue of 18%. Total product revenue from our Systems and Resource Management business unit segment increased $2.1 million, or 5%, in the first quarter of fiscal 2009 compared to the first quarter of fiscal 2008. Total business unit segment revenue would not have increased in the first quarter of fiscal 2009 compared to the first quarter of fiscal 2008 without our acquisitions of PlateSpin Ltd. (“PlateSpin”) and Managed Object Solutions, Inc. (“Managed Objects”), which we acquired in March 2008 and November 2008, respectively, which accounted for $7.0 million of revenue during the first quarter of fiscal 2009.

 

 

 

Our Workgroup business unit segment is an important source of cash flow and provides us with the potential opportunity to sell additional products and services. Our revenue from Workgroup products decreased 9% in the first quarter of fiscal 2009 compared to the first quarter of fiscal 2008. In addition, services revenue was lower by 39%, such that total revenue from our Workgroup business unit segment decreased 13% in the first quarter of fiscal 2009 compared to the first quarter of fiscal 2008.

Our services offerings are focused on supporting product sales, not generating stand-alone revenue or profits, which is in line with our strategic initiative of focusing our services business on driving more profitable product revenue while leveraging our services capabilities internally and through third-party partners. As a result of this, we have seen a general decline in our services revenue. However, the decline in services revenue in the first quarter of fiscal 2009 as compared to the first quarter of fiscal 2008 was greater than anticipated as customers lowered their discretionary spending in response to current economic conditions. Total product revenue was down 2% and services revenue was down 32%, resulting in a net decrease in total revenue of 7% in the first quarter of fiscal 2009 compared to the first quarter of fiscal 2008. Foreign currency exchange rate fluctuations unfavorably impacted revenue by 1% and the PlateSpin and Managed Objects acquisitions favorably impacted revenue by 3% during the first quarter of fiscal 2009, compared to the first quarter of fiscal 2008.

Because much of the revenue we invoice is deferred and recognized over time, we consider invoicing, or bookings, to be a key indicator of current sales performance and future revenue performance. Overall invoicing was below expectations in all of our business unit segments largely as a result of the weak economy as customers focused on capital conservation and expense management. These factors have led to smaller or delayed projects and extended sales cycles for our customers. While we expect these trends to continue in the near term, the fundamental markets that we serve and the value we bring to those markets still look attractive. We believe that the current customer focus on reducing cost, complexity and risk is aligned with our overall value proposition. Additionally, the recent financial turmoil demands stricter requirements for regulation and audit, creating opportunities for certain of our products.

During the first quarter of fiscal 2009, we recorded net restructuring expenses of $8.0 million, which were primarily a continuation of our restructuring activities that began in the fourth quarter of fiscal 2006. We anticipate restructuring charges in the range of $5 million to $7 million in the second quarter of fiscal 2009. We are still evaluating what additional charges we may incur in the second half of fiscal 2009. While our initiatives and their implementation involve opportunities, risks, and challenges, barring unforeseen circumstances, we believe they position us well in this challenging environment.

 

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NOVELL, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS – (Continued)

 

 

This excerpt taken from the NOVL 10-K filed Dec 23, 2008.

Overview

Through our infrastructure software and ecosystem of business partnerships, we harmoniously integrate mixed IT environments, allowing people and technology to work as one. We deliver an interoperable Linux platform and a portfolio of integrated IT management software that helps customers worldwide reduce cost, complexity and risk. With our 25 years of experience and our vision of interoperability and flexibility, we deliver powerful, next-generation business infrastructures that are designed to enable our customers to stay competitive.

To best align our business with our strategy, we are organized into four business unit segments. Our business unit segments are Open Platform Solutions, Identity and Security Management, Systems and Resource Management, and Workgroup. Below is a revenue update on each of our business unit segments:

 

   

Within our Open Platform Solutions business unit segment, Linux and open source products remain an important growth area. During fiscal 2008, we established and expanded relationships with several strategic partners to increase the reach of both our server and desktop products, such as with Microsoft and SAP. Revenue from our Linux Platform Products increased 38% in fiscal 2008 compared to fiscal 2007. Services revenue also increased 1%, such that total revenue from our Open Platform Solutions business unit segment increased 29% in fiscal 2008 compared to fiscal 2007.

 

   

We continue to expand our position in the Identity and Security Management market by offering products that deliver a complete, integrated solution in the areas of security, compliance, and governance issues. Within this segment, revenue from our Identity and Access Management products increased 15% in fiscal 2008 compared to fiscal 2007. This product revenue increase was offset by services revenue declines of 28%, such that total revenue from our Identity and Security Management business unit segment decreased 5% in fiscal 2008 compared to fiscal 2007.

 

   

Systems and Resource Management products continue to be an important part of our product offering. Our strategy is to provide a complete “desktop to data center” offering, with leadership in virtualization for both Linux and mixed-source environments. Systems and Resource Management product revenue increased 15% in fiscal 2008 compared to fiscal 2007, of which 10% of the increase was from the March 2008 acquisition of PlateSpin. The overall product revenue increase was partially offset by services revenue declines of 18%, such that total revenue from our Systems and Resource Management business unit segment increased 10% in fiscal 2008 compared to fiscal 2007.

 

   

Our Workgroup revenue base is an important source of cash flow and provides us with a potential opportunity to sell additional products and services. We continued efforts to stabilize the decline of revenue from our legacy products, such as OES and NetWare-related products. Our revenue from Workgroup products decreased 2% in fiscal 2008, compared to fiscal 2007. In addition, services revenue was lower by 19%, such that total revenue from our Workgroup business unit segment decreased 4% in fiscal 2008 compared to fiscal 2007. Given the current economic environment these revenue declines may continue into fiscal 2009.

During the second quarter of fiscal 2008, we completed our acquisitions of PlateSpin and SiteScape (See the “Acquisitions” section below for more detail).

Our services offerings are focused on supporting product sales, not generating stand-alone revenue or profits, which is in line with our strategic initiatives. This includes focusing our services business on driving more profitable product revenue while leveraging our services capabilities internally and through third-party partners. Our results for fiscal 2008 showed signs of success in this initiative to shift to a more profitable revenue mix, which is reflected in our higher total gross profit and total gross profit margins for fiscal 2008, compared to fiscal 2007. Though total services revenue was down 20%, total product revenue was up 8%, resulting in a net increase in total net revenue of 3% in fiscal 2008 compared to fiscal 2007. Foreign currency exchange rate fluctuations and the PlateSpin acquisition each favorably impacted revenue by 2% during fiscal 2008, compared to fiscal 2007.

During fiscal 2008, we refined the improvements we have made in our sales, product development, and back office initiatives. In conjunction with these initiatives, we incurred $28.6 million of net restructuring expenses, which was above our previously announced range of $15 million to $25 million (See the “Restructuring Expenses” section below for more detail). While our initiatives and their implementation involve opportunities, risks, and challenges, barring unforeseen circumstances, we believe they position us well in this challenging environment.

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

 

Overview (Continued)

 

Given the current economic environment, we are cautious about our overall outlook for fiscal 2009. IT market growth rates are expected to slow, sales cycles are likely to extend and budgets for select IT investments may be reduced or delayed. But this uncertainty creates opportunities for us. For example, as customers seek to leverage and extend their IT investments, we believe our open and interoperable Linux and data center management solutions address our customer’s needs for reducing operating and technology costs within the data center. Additionally, the recent financial turmoil demands stricter requirements for regulation and audit, creating opportunities for certain of our products.

This excerpt taken from the NOVL 10-Q filed Sep 8, 2008.

Overview

Below is a brief update on the revenue results for the third quarter of fiscal 2008 for each of our business units:

 

 

Within our Open Platform Solutions business unit segment, Linux and open source products remain an important growth business. Revenue from our Linux Platform Products increased 30% in the third quarter of fiscal 2008 compared to the same period a year ago. This product revenue increase was partially offset by lower services revenue of 12%, such that total revenue from our Open Platform Solutions business unit increased 21% in the third quarter of fiscal 2008 compared to the same period a year ago.

 

 

We continue to expand our position in the market for our Identity and Security Management business unit segment by offering products that we believe deliver a complete, integrated solution in the areas of security, compliance, and governance issues. Within this segment, revenue from our Identity and Access Management products increased 22% in the third quarter of fiscal 2008 compared to the same period a year ago. This product revenue increase was more than offset by lower services revenue of 31%, such that total revenue from our Identity and Security Management business unit decreased 3% in the third quarter of fiscal 2008 compared to the same period a year ago.

 

 

Systems and Resource Management products continue to be an important part of our product offering. Our strategy is to provide a complete “desktop to data center” offering, with leadership in virtualization for both Linux and mixed-source environments. Systems and Resource Management product revenue increased 25% in the third quarter of fiscal 2008 compared to the same period a year ago. Excluding the impact of our PlateSpin acquisition in March 2008, product revenue increased 8% year-over-year. Overall product revenue was partially offset by lower services revenue of 24%, such that total revenue from our Systems and Resource Management business unit increased 17% in the third quarter of fiscal 2008 compared to the same period a year ago.

 

 

Our Workgroup revenue base is an important source of cash flow and provides us with the potential opportunity to sell additional products and services. We continued efforts to stabilize the decline of revenue from our OES and NetWare-related products. Our revenue from Workgroup products decreased 1% in the third quarter of fiscal 2008 compared to the same period a year ago. In addition, services revenue was lower by 25%, such that total revenue from our Workgroup business unit decreased 4% in the third quarter of fiscal 2008 compared to the same period a year ago.

Our services offerings are focused on supporting product sales, not generating stand-alone revenue or profits, in line with our strategic initiatives. This includes focusing our services business to drive more profitable product revenue while leveraging our services capabilities internally and through third-party partners. Our results for the third quarter of fiscal 2008 are showing signs of success in this initiative to shift to a more profitable revenue mix, which is reflected in our higher total gross profit and total gross profit margins for both the third quarter of fiscal 2008 and the first nine months of fiscal 2008, compared to the related prior year periods. Though total services revenue was down 25%, total product revenue was up 11%, resulting in a net increase in total revenue of 4% in the third quarter of fiscal 2008 compared to the same period a year ago. Foreign currency exchange rate fluctuations and the PlateSpin acquisition each favorably impacted revenue by 3% during the third quarter of fiscal 2008, compared to the same period in fiscal 2007.

During fiscal 2008, in continuation of our strategic plan, we are refining the improvements we have made in our sales, product development, and back office initiatives. In addition, we continue to realign our services business to improve its efficiency and focus. In conjunction with these initiatives, through the first nine months of fiscal 2008, we incurred $13.4 million of restructuring expenses. We expect total restructuring charges for fiscal 2008 to be at the high end of our previously announced range of $15 million to $25 million. While our initiatives and their implementation involve opportunities, risks, and challenges, we believe they will result in sustainable profitability.

 

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NOVELL, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS – (Continued)

 

Overview (Continued)

 

During the second quarter of fiscal 2008, we completed our acquisitions of PlateSpin and SiteScape, Inc. (“SiteScape”) (See the acquisitions section below for more detail).

This excerpt taken from the NOVL 10-Q filed Jun 6, 2008.

Overview

Below is a brief update on the revenue results for each of our business units:

 

   

Within our Open Platform Solutions business unit segment, Linux and open source products remain an important growth business. Revenue from our Linux Platform Products increased 31% in the second quarter of fiscal 2008 compared to the same period a year ago. This product revenue increase was partially offset by lower services revenue of 4%, such that total revenue from our Open Platform Solutions business unit increased 20% in the second quarter of fiscal 2008 compared to the same period a year ago.

 

   

We continue to expand our position in the market for our Identity and Security Management business unit segment by offering products that deliver a complete, integrated solution in the areas of security, compliance, and governance issues. Within this segment, revenue from our Identity and Access Management products increased 13% in the second quarter of fiscal 2008 compared to the same period a year ago. This product revenue increase was more than offset by lower services revenue of 28%, such that total revenue from our Identity and Security Management business unit decreased 9% in the second quarter of fiscal 2008 compared to the same period a year ago.

 

   

Systems and Resource Management products continue to be an important part of our product offering. Our strategy is to provide a complete “desktop to data center” offering, with leadership in virtualization for both Linux and mixed-source environments. Systems and Resource Management product revenue increased 15% in the second quarter of fiscal 2008 compared to the same period a year ago. Excluding the impact of our PlateSpin acquisition on March 26, 2008, product revenue increased 7% year-over-year. Overall product revenue was partially offset by lower services revenue of 13%, such that total revenue from our Systems and Resource Management business unit increased 11% in the second quarter of fiscal 2008 compared to the same period a year ago.

 

   

Our Workgroup revenue base is an important source of cash flow and provides us with the potential opportunity to sell additional products and services. We continued efforts to stabilize the decline of revenue from our OES, NetWare and NetWare-related products. Our revenue from Workgroup products decreased 1% in the second quarter of fiscal 2008 compared to the same period a year ago. In addition, services revenue was lower by 16%, such that total revenue from our Workgroup business unit decreased 3% in the second quarter of fiscal 2008 compared to the same period a year ago.

During fiscal 2008, in continuation of our two-year strategic plan, we will refine the improvements we have made in our sales, product development, and back office initiatives. In addition, we will continue to realign our services business to improve its efficiency and focus. In conjunction with these initiatives, we expect to incur restructuring charges of $15 million to $25 million in fiscal 2008. While our initiatives and their implementation involve opportunities, risks, and challenges, we believe they will result in sustainable profitability.

Our services offerings are focused on supporting product sales, not generating stand-alone revenue or profits. This is in line with our initiatives, discussed above. This includes focusing our services business to drive product revenue while transferring service revenue to our partners. Our results for the second quarter of fiscal 2008 are showing early signs of success in this initiative to shift to a more profitable revenue mix. Though services revenue was down 19%, product revenue was up 7%, resulting in a net increase in total revenue of 1% in the second quarter of fiscal 2008 compared to the same period a year ago. Foreign currency exchange rate fluctuations during the second quarter of fiscal 2008, compared to the same period in fiscal 2007, favorably impacted revenue by 3%.

During the second quarter of fiscal 2008, we completed our acquisitions of PlateSpin and SiteScape, Inc. (“SiteScape”) (See the acquisitions section below for more detail on these acquisitions).

 

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NOVELL, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS – (Continued)

 

This excerpt taken from the NOVL 10-Q filed Mar 10, 2008.

Overview

Below is a brief update on each of our business units:

 

 

 

Within our Open Platform Solutions business unit segment, Linux and open source products remain an important growth business. In fiscal 2007, we established and expanded relationships with several strategic partners to increase the reach of both our server and desktop products. Revenue from our Linux Platform Products increased 65% in the first quarter of fiscal 2008 compared to the same period a year ago. This product revenue increase was complemented by higher services revenue of 41%, such that total revenue from our Open Platform Solutions business unit increased 56% in the first quarter of fiscal 2008 compared to the same period a year ago.

 

 

 

We continue to expand our position in the market for our Identity and Security Management business unit segment by offering products that deliver a complete, integrated solution in the areas of security, compliance, and governance issues. Our unique role-based, policy-driven approach has received positive industry reviews. Within this segment, revenue from our Identity and Access Management products increased 15% in the first quarter of fiscal 2008 compared to the same period a year ago. This product revenue increase was more than offset by lower services revenue of 18%, such that total revenue from our Identity and Security Management business unit decreased 1% in the first quarter of fiscal 2008 compared to the same period a year ago.

 

 

 

Systems and Resource Management products continue to be an important part of our product offering. Our strategy is to provide a complete “desktop to data center” offering, with leadership in virtualization for both Linux and mixed-source environments. At the end of fiscal 2007, we announced the general availability of two major products, ZENworks Configuration Management and ZENworks Orchestrator. We believe these products will become a new source of growth in the future. Systems and Resource Management product revenue increased 5% in the first quarter of fiscal 2008 compared to the same period a year ago. This product revenue increase was partially offset by lower services revenue of 12%, such that total revenue from our Systems and Resource Management business unit increased 2% in the first quarter of fiscal 2008 compared to the same period a year ago.

 

 

 

Our Workgroup revenue base is an important source of cash flow and provides us with the potential opportunity to sell additional products and services. We continued efforts to stabilize the decline of revenue from our legacy products, such as OES, NetWare and NetWare-related products. At the end of fiscal 2007, we announced the general availability of OES 2, which completes the transition of delivering NetWare services on Linux. We also introduced Novell Teaming + Conferencing, which extends the value of our collaboration offering. Our Workgroup products increased 1% in the first quarter of fiscal 2008 compared to the same period a year ago. This product revenue increase was more than offset by lower services revenue of 11%, such that total revenue from our Workgroup business unit decreased 1% in the first quarter of fiscal 2008 compared to the same period a year ago.

Our services business is focused on supporting product sales, not generating stand-alone revenue or profits. This is in line with one of the initiatives of our two-year strategy to transform our business, which is to realign our services business to be more efficient and product focused. This includes focusing our services business to drive product revenue while transferring service revenue to our partners. Our results for the first quarter of 2008 are showing early signs of success in this initiative to shift to a more profitable revenue mix. Though services revenue was down 9%, total revenue was up 6% in the first quarter of fiscal 2008 compared to the same period a year ago.

In continuation of our two-year strategic plan, during fiscal 2008 we will refine the improvements we have made in our sales, product development, and back office initiatives. In addition, we will realign our services business to improve its efficiency and focus. In conjunction with these initiatives, we expect to incur restructuring charges of $15 million to $25 million in fiscal 2008. While our initiatives and their implementation involve opportunities, risks, and challenges, we believe they will result in long-term, sustainable profitability.

Subsequent to the first quarter of fiscal 2008, we acquired SiteScape, Inc. (“SiteScape”), a provider of open collaboration software for approximately $19 million in cash, and entered into a definitive agreement to acquire PlateSpin, Ltd. (“PlateSpin”), a leader in support solutions for complete workload lifecycle management and optimization for Windows, UNIX and Linux operating systems in the physical and virtual data center for approximately $205 million in cash. SiteScape and PlateSpin will become part of our Workgroup and Systems and Resource Management business units, respectively.

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF

This excerpt taken from the NOVL 10-K filed Dec 21, 2007.
Overview
 
We deliver infrastructure software for the Open Enterprise. We are a leader in desktop to data center operating systems based on Linux and the software required to secure and manage mixed information technology (“IT”) environments. We help customers around the world minimize cost, complexity, and risk, allowing them to focus on innovation and growth.
 
To best align our business with our strategy, we are organized into four business segments. Our business segments are open platform solutions, identity and security management, systems and resource management, and workgroup. During fiscal 2007, we divested our business consulting segment through the sale of Salmon, our UK-based consulting unit, in the second quarter of fiscal 2007 and as a result of an agreement to sell our CTP Switzerland consulting unit that we entered into in the fourth quarter of fiscal 2007.
 
Below is an update on each of our business units:
 
  •  Within our open platform solutions business unit segment, Linux and open source products remain an important growth business. During the year we established and expanded relationships with several strategic partners to increase the reach of both our server and desktop products. Revenue from our Linux platform products increased 69% year-over-year in fiscal 2007. The strength of our revenue growth was due in part to our agreement with Microsoft which was signed in November 2006.
 
  •  We continue to expand our position in the identity and security management market by offering products that deliver a complete, integrated solution in the areas of security, compliance, and governance issues. Our unique role-based, policy-driven approach has received positive industry reviews. Revenue from our identity and access management products increased 7% in fiscal 2007 as compared to the same period a year ago.
 
  •  Systems and resource management products continue to be an important part of our product offering. Our strategy is to provide a complete “desktop to data center” offering, with leadership in virtualization for both Linux and mixed-source environments. Earlier this year, we announced the general availability of two major products, ZENworks Configuration Management and ZENworks Orchestrator. We believe these products will become a new source of growth in the future. Revenue was relatively flat in fiscal 2007 as the market was anticipating a refreshed product offering.
 
  •  Our workgroup revenue base is an important source of cash flow and provides us with a potential opportunity to sell additional products and services. We continued efforts to stabilize the decline of revenue from our legacy products, such as Open Enterprise Server, NetWare and NetWare-related products. At the end of fiscal 2007, we announced the general availability of Open Enterprise Server 2, which completes the transition of delivering NetWare services on Linux. We also introduced Novell Teaming + Conferencing, which extends the value of our collaboration offering. Our Workgroup business declined 9% in fiscal 2007, excluding the impact of the Microsoft agreement, as compared to the same period a year ago.
 
At the beginning of the fiscal year, we identified several key initiatives including; improving our sales model and sales staff specialization; integrating our product development approach and balancing between on and offshore development locations; and improving administrative and support functions with the primary goal to simplify and refocus our business and increase sustainable profitability. We have substantially completed these initiatives according to plan. In conjunction with these initiatives, we incurred restructuring charges of $43.1 million in fiscal 2007.
 
In continuation of our two-year strategic plan, we will refine the improvements we made in our sales, research and development, and back office initiatives in fiscal 2008. In addition, we will realign our services business to improve its efficiency and focus. In conjunction with these initiatives, we expect to incur restructuring charges of
 
 
 
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$15 million to $25 million in fiscal 2008. While our initiatives and their implementation involve opportunities, risks, and challenges, we believe they will result in long-term, sustainable profitability.
 
This excerpt taken from the NOVL 10-K filed May 25, 2007.
Overview
 
With respect to the U.S. economy, spending continues to improve in many of the areas of information technology (“IT”) that we target such as security, regulatory compliance and server/function consolidation. We believe that strategic IT security projects put on hold in previous years are now being approved. Overall, increased IT funding is helping to attract new Linux and identity management business, which is still driven by an increased focus on gaining efficiencies and lowering operating costs.
 
Internationally, the European area of our EMEA segment has experienced sluggish growth. Market spending is still below our expectations with long sales cycles and a clear focus on IT cost savings. Consolidation of platforms and security remain high priority items for our customers.
 
The economy in Asia Pacific, including Japan, is mixed as some regions continue to struggle with core economic issues while others are growing at or above global rates.
 
We continue to make progress in several of our key product areas:
 
  •  Linux and Open Source products remain an important growth business. Revenues from our Linux platform products increased 26% year over year in fiscal 2006. A major fiscal 2006 milestone was the delivery of SUSE Linux Enterprise 10, the platform for the Open Enterprise. SUSE Linux Enterprise 10 offers a complete open source platform for the mission-critical applications that drive customers’ businesses. It includes SUSE Linux Enterprise Server and SUSE Linux Enterprise Desktop, providing an array of enterprise-class computing solutions that we believe is unmatched in the industry.
 
  •  We continue to grow our positions in the systems, security and identity management market by offering the most comprehensive products that address customer problems in the areas of security, compliance, risk mitigation and systems management. Our unique role-based, policy-driven approach has been well received, and we continue to experience strong invoicing growth in this category and a number of large enterprise deals. In fiscal year 2006, we introduced a number of new product releases including Novell Identity Manager 3, Novell Secure Login 6 and Novell Access Manager 3. Our e-Security Sentinel product acquisition provides a comprehensive compliance solution to integrate people, systems and processes. We expect strong revenue and performance momentum in fiscal 2007 from our new products.
 
  •  We continued efforts to stabilize the decline of our revenue from our legacy products, such as OES and NetWare and NetWare-related products. Our legacy revenue base is an important source of cash flow and a potential opportunity for us to sell more products and services. With the release of our OES product in March 2005, we have taken steps to help maintain that installed base and address revenue declines of these products. Nevertheless, our combined NetWare and OES business declined by 18% during fiscal 2006 compared to fiscal 2005. We continue to work with our customers to help them migrate from NetWare and other platforms

 
 
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  of our competitors to OES and SUSE Linux using tools, training and education emphasizing the return on investment of upgrading Linux versus proprietary platforms.
 
Our strategic focus is to provide enterprise-class infrastructure software and services with a flexible combination of open source and proprietary technologies. By implementing our solutions, customers can reduce costs and complexity while increasing the return on their IT investment. Unlike other infrastructure software providers, we help customers migrate from proprietary solutions to open source technology at a pace that best suits them.
 
In support of this strategy, we have identified several key initiatives including:
 
  •  redesigning our sales model;
 
  •  realigning our research and development processes; and
 
  •  implementing changes in our administrative and support functions.
 
Our initiatives and their implementation involve opportunities, risks and challenges. While these initiatives, which we will implement in fiscal 2007, will require substantial investment, we believe they will result in long-term profitability. The following discusses these initiatives in further detail.
 
  •  We intend to improve our sales model by investing in and aligning it to address our unique markets and opportunities. We are undertaking a major shift from direct to indirect sales coverage and capabilities. Specifically, we are building out a world class infrastructure for web- and tele-sales that will be focused on our renewal activities, thus enabling our direct sales force to focus on new customer acquisition. Additionally, we are investing in new, dedicated sales force training and specialization roles, which we believe will result in improved customer conversations regarding the benefits of our products. Finally, we are increasing our targeted set of global strategic partners with whom we go to market with in our strategic product categories. In November 2006, we announced that one such partner was Microsoft.
 
  •  We intend to restructure our research and development processes to reduce costs and improve productivity by evaluating the appropriate balance between on and offshore research and development locations. As a result, we are investing in overlapping, offshore research and development teams to eventually assume functions once handled in more expensive environments. Additionally, we believe our investments in an improved product life-cycle management process will help facilitate this activity while assuring our products are addressing the needs of the market.
 
  •  We plan to implement changes to our administrative and support functions in the near future with the goal of increasing efficiency and reducing costs. We are currently reviewing recommendations made by an external specialty consulting firm that we hired to study our administrative support functions and cost structure as the first step toward implementing this initiative.
 
This excerpt taken from the NOVL 10-Q filed Jun 8, 2006.

Overview

 

With respect to the U.S. economy, spending continues to improve in many of the areas of IT that we target such as security, regulatory compliance and server/function consolidation. We believe that strategic IT security projects put on hold in previous years are now being approved. Overall, increased IT funding is helping to attract new Linux and identity management business, which is driven by an increased focus on gaining efficiencies and lowering expenses.   Sales cycles of our products and services are still relatively long, with customers frequently requiring a product pilot before a larger purchase will occur.

 

Internationally, following a period of sluggish growth, the European area of our EMEA segment is showing signs of recovery, particularly in the government sector.  However, market spending is still below our expectations with long sales cycles and a clear focus on IT cost savings. Consolidation of platforms and security remain high priority items for our customers. Our EMEA segment remains a focus for our management and we expect to face continued financial challenges in that region. The economy in Asia Pacific, including Japan, is mixed as some regions continue to struggle with core economic issues and others are growing at or above global rates.

 

We continued to make progress on our key initiatives this quarter.

 

     One of our most important initiatives is to increase revenue from our Linux and open source product offerings.  Revenues from our Linux platform products increased 20% during the second quarter of fiscal 2006 over the same period in the prior year. This quarter we announced our next-generation platform for the open enterprise, SUSE Linux Enterprise 10.  With enhanced performance, scalability, security and usability, SUSE Linux Enterprise 10 is the basis for all of Novell’s next-generation enterprise Linux offerings, including SUSE Linux Enterprise Server and the recently announced SUSE Linux Enterprise Desktop. SUSE Linux Enterprise Desktop and Server offerings are scheduled to be available in the second half of calendar 2006.  We also introduced the first workgroup suite for the open enterprise, the Novell Open Workgroup Suite, which includes server and desktop components with robust management tools, e-mail, collaboration and the most advanced open source office products in the market.  Strengthening our position as a leader in driving open source software adoption, we announced a near doubling in the size of our Market Start program in the second fiscal quarter.  Launched in 2005 to accelerate open source adoption worldwide, Market Start gives enterprise open source companies access to Novell’s global sales and marketing channels to bring their solutions to the marketplace.

 

     We continued to grow our positions in the resource management and identity markets by offering the most comprehensive products that address customer problems in the areas of security, compliance, risk mitigation and systems management. Our unique role-based, policy-driven approach has been well received, and we continue to experience strong growth in our identity and access management category, with large enterprise deals driving license growth.  To further expand our lead in this market, we entered the security management market via the acquisition of e-Security in the second quarter of fiscal 2006.  e-Security is a leader in compliance monitoring and reporting capabilities, producing the enterprise-class security information and event management product Sentinel 5.  We expect revenue growth and strong performance in our systems, security and identity management areas throughout the remainder of fiscal 2006.

 

     We continued efforts to stabilize the decline of our revenue from traditional products, such as NetWare. Our traditional revenue base is an important source of cash flow and a potential opportunity for us to sell more products and services. Novell recognizes the need to continue supporting its loyal NetWare customers, and during our second fiscal quarter we reiterated our commitment to NetWare by reminding customers that Novell can and will support NetWare 6.5 for as long as customers choose to run it.  With the release of our OES product in March 2005, we have taken steps to help maintain that installed base and address revenue declines of these products. Nevertheless, our combined NetWare and OES business declined 16% during the second quarter of fiscal 2006 compared to the same period in the prior year.  We continue to work with our customers to help them migrate from NetWare and other platforms of our competitors to OES using tools, training and education emphasizing the return on investment of upgrading to Linux versus proprietary platforms.

 

     As we have discussed in the past, we have re-architected our go to market plans, selecting key geographies in which to deploy our resources and clearly defining our partner and channel strategy.  In addition, we have restructured our sales incentive plans to motivate our direct sales and channel partners to focus on key product areas globally.  Now we are focused on executing on those plans.

 

On May 24, 2006, we completed the sale of our majority-owned management consultancy subsidiary, Celerant, for $77.0 million in cash to a group comprised of Celerant management and Caledonia Investments plc.  We acquired Celerant as part of our purchase of Cambridge Technology Partners in 2001.  The sale was the result of our previously announced plan to explore strategic alternatives for Celerant. There will be no further shareholding or operational relationship between us and Celerant going forward.  With the sale of our interest in Celerant, we will focus on our core businesses of Linux and open source; systems, security and identity

 

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management; and workgroup computing. The Celerant divestiture has no impact on our existing IT consulting business. We will continue to offer IT consulting services around its core businesses.

 

This excerpt taken from the NOVL 10-Q filed Mar 10, 2006.

Overview

 

With respect to the U.S. economy, spending continues to improve in many of the areas of information technology (“IT”) that we target such as security, regulatory compliance and server/function consolidation. We believe that strategic IT security projects put on hold in previous years are now being approved. Overall, increased IT funding is helping to attract new Linux and identity management business, which is driven by an increased focus on gaining efficiencies and lowering expenses.   Sales cycles of our products and services are still relatively long, with customers frequently requiring a product pilot before a larger purchase will occur.

 

Internationally, in our EMEA segment, the European economy is flat, and market spending is still below expectations with long sales cycles and a clear focus on IT cost savings. Consolidation of platforms and security remain high priority items for our customers, and initiatives on auditing in the health and public sector are increasing on a small enterprise and local government scale. Our EMEA segment remains a focus for our management and we expect to face continued financial challenges in that region. The economy in Asia Pacific, including Japan, is mixed as some regions continue to struggle with core economic issues and others are growing at or above global rates.

 

We continued to make progress on our key initiatives this quarter.

 

     One of our most important initiatives is to increase revenue from our Linux and Open Source product offerings.  Revenues from our Linux platform products increased 22% during the first quarter of fiscal 2006 over the same period in the prior year. We recently demonstrated the next release of Novell Linux Desktop.  In support of the open source movement, during the first quarter of fiscal 2006 we donated the core components of our AppArmor framework to provide a foundation for a new open source project dedicated to advancing Linux application security.  In November 2005, Open Invention Network LLC (“OIN”) was established by us, IBM, Philips, Red Hat and Sony to acquire patents and promote and protect Linux and open source.

 

     We continued to grow our positions in the resource management and identity market by offering the most comprehensive products that address customer problems in the areas of security, compliance, risk mitigation and systems management. Our unique role-based, policy-driven approach has been well received, and we continue to experience strong deferred revenue growth in this category, with large enterprise deals driving license growth.  We expect strong revenue and performance momentum in these areas throughout the remainder of fiscal 2006.  We released Novell Identity Manager 3.0 in the first quarter of fiscal 2006, with advanced capabilities for flexible, powerful tools to help customers to meet their security and compliance needs.

 

     We continued efforts to stabilize the decline of our revenue from traditional products, such as NetWare. Our traditional revenue base is an important source of cash flow and a potential opportunity for us to sell more products and services. With the release of our OES product in March 2005, we have taken steps to help maintain that installed base and address revenue declines of these products. However, our combined NetWare and OES business declined by 11% during the first quarter of fiscal 2006 compared to the same period in the prior year.  We continue to work with our customers to help them migrate from NetWare and other platforms of our competitors to OES using tools, training and education emphasizing the return on investment of upgrading to Linux versus proprietary platforms.

 

     As we have discussed in the past, we have re-architected our go to market plans, selecting key geographies in which to deploy our resources and clearly defining our partner and channel strategy. In addition, we have restructured our sales incentive plans to motivate our direct sales and channel partners to focus on key product areas globally. Now we are focused on executing on those plans.

 

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In addition to our strategic initiatives, we made a number of operational improvements in our business during the first quarter of fiscal 2006:

 

     In the fourth quarter of fiscal 2005, we undertook a significant restructuring action as part of our ongoing transition to Linux and identity management to concentrate our resources on key growth opportunities in the Linux, open source, resource management, and identity markets in order to better align our costs with our revenue opportunities and our overall business strategy. To achieve greater operational efficiencies in our business, we are also focused on eliminating non-core assets.

 

     In connection with our restructuring, we streamlined our field operations, segmenting our markets into what we consider to be primary markets — large, established markets where we have a significant customer presence and the ability to deliver the range of our products directly to the customer — and emerging markets, where we will look more to partners in our go to market and delivery. We believe this reorganization will also help us to leverage our direct sales force more effectively.

 

     The restructuring involved the elimination or cutback of certain product and service offerings. We expect that the annualized run rate cost savings to be realized as a result of this restructuring will be approximately $110 million, prior to considering the impact of SFAS No. 123(R). Some of these cuts are expected to negatively impact revenue in fiscal year 2006. This negative impact is in addition to continued expected declines in our traditional business revenue, which was also a significant factor in our restructuring decision.

 

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