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.


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