Novell's profits up sixfold in quarter

Novell Inc., which sells networking software and computer-consulting services, said Tuesday that its third-quarter profit rose sixfold, and it started an internal review of how it grants stock options.

Net income rose to $11.6 million, or 3 cents a share, from $1.9 million, or break-even, a year earlier, the company, based in Waltham, Mass., said Tuesday in a statement. About one-third of the company's 5,200-person work force is in Provo.

Sales fell 4.4 percent to $241.4 million in the period ended July 31. Novell said the results are preliminary until it completes its probe of stock-option grants.

New Chief Executive Officer Ron Hovsepian is trying to cut costs and turn Novell into a seller of Linux operating-system software after the company ousted its CEO and chief financial officer in June amid profit and sales shortfalls. Novell said revenue from its Linux products rose 30 percent to $12 million, while sales of older products fell 19 percent.

"The Linux number was better than expected at $12 million, but is still a small percentage of their overall business," said Brendan Barnicle, an analyst at Pacific Crest Securities Inc., who rates the shares "sector perform" and said he doesn't own them. "It seems like it was a typical Novell quarter; some good news and some bad news with the guidance disappointing."

Profit, minus some costs, will be 4 cents a share this quarter on sales of $246 million to $256 million, Novell said in the statement. Analysts expected 5 cents and sales of $261.4 million, the average of 11 estimates in a Thomson Financial survey.

Shares of Novell fell 9 cents to $6.69 in extended trading, after falling 2 cents to close at $6.78 Tuesday on the Nasdaq Stock Market. They have dropped 23 percent this year.

Novell has cut jobs to reduce costs and in 2003 and 2004 bought two companies to become a seller of Linux software in a bid to save its server software business from market share losses to Microsoft Corp.'s Windows. Since then, Novell has had difficulty competing with Red Hat's market leading Linux programs.

"We feel pretty good about our progress," interim CFO Dana Russell said in an interview. "The Linux platform products did have a 30 percent recognized revenue growth year over year, which is the highest recognized revenue growth rate we've ever had."

Russell said the company continues its search for a permanent CFO and that he remains a candidate for the job.