Tuesday, August 29, 2006

Novell disappoints - what next?

Tonight Novell posted results below market expectations (watch Wednesday share action for proof), but listening to the conference call really convinced me that Ron (the new CEO) really "gets it" about the importance of SUSE Linux Enterprise 10. I'm even more convinced now that Oracle or IBM will need to buy Novell to own SUSE before summer 2007. During the conference call, Novell talked about appreciating the subscription and consultancy business model - showing it's headed in the exact same direction as Sun Micro. Let's see if Ron can pull out the same kinds of positive turn-around results that Jon is enjoying at Sun.

Tuesday, August 08, 2006

Novell - copying Sun too?

Reading Ron Hovsepian talk on the boston.com business section about Novell reminds me about Sun's turnaround under Jon Schwartz. Here are the similarities:

  • Ron wants to simplify Novell and move to profitability
  • Ron's focus will be open source, especially his operating system
  • Ron understands the biggest asset of Novell is SuSE Linux

Compare this with Jon Schwartz at Sun and there are obvious parallels with Sun's OpenSolaris project, and recent job cuts.

So how does the Novell company situation compare with Sun? Well, just like Sun, Novell has a healthy balance sheet ($1.5bn cash) and good revenues ($1.2bn per year). At today's valuation of $2.2bn, just $60m a year profit would give Novell a 35x P/E multiple - and that's at a margin of only 5% of revenues. Ron Hovsepian shouldn't have to pull so many levers so hard to get to this place.

Going forwards how's the climate? IBM has made strategic investments in Novell, and needs a healthy Novell to avoid a Red Hat enterprise Linux monopoly. Novell's SuSE Linux is of huge importance to IBM's Power processor. And guess what - Ron spent 17 years working as an executive at IBM. Hmmm. Does it make you wonder if some big blue company might buy Novell soon?

And then there's Larry Ellison at Oracle, who wasn't happy to see Red Hat join forces with JBoss to edge into his middleware market. In an interview at Forbes.com, he said Oracle might consider taking a Linux distro and supporting it via Oracle. This had a predictable negative impact on Linux shares, which is good if you're a buyer. So maybe Larry is thinking about buying a Linux distro company?

In summary, one of 3 things will happen to Novell:

  1. Ron executes well and turns a profit - shares trade at $10 or more
  2. IBM decides that it needs to own Novell - and buys at $10 or more
  3. Larry decides to own Novell and run it against Red Hat - again $10 or more

...so IMHO it's a great time to buy Novell, assuming Ron is like Jon.

Wednesday, August 02, 2006

IBM - copying Sun with AMD servers

Yesterday, IBM announced a range of new AMD servers aimed directly at Sun's X4100, X4200 and X4600 servers. Coupled with this announcement was news that IBM is releasing 4-way AMD blades to compete with the Sun Blade 8000 Modular System. Well, they say that imitation is the sincerest form of flattery!

The downside for Sun is that IBM has managed to squeeze an extra 15% of speed out of the server RAM with patented Xcelerated Memory Technology™. Let's see how the benchmarks compare - and hope that Sun can stay a step ahead.