Open Source News

What's Next for Novell?

By Paula Bernier, Executive Editor, IP Communications Magazines  |  November 01, 2010

This article originally appeared in the November 2010 issue of INTERNET TELEPHONY

As of press time in late September, rumors were swirling about the potential acquisition of Novell (News - Alert) Inc., one of the large companies that contributes to and distributes products and services supporting the popular open source technology known as Linux. Most reports indicated that VMware Inc. is the most likely company to take control of Novell. The Wall Street Journal in September also suggested that Attachmate Corp., a private-equity backed software company, may be interested in some of the Novell assets, including NetWare, Novell's network operating system. And that spurred reports that a two-part deal with Novell could be at hand.

VMware already clearly has an interest in Novell, as the two companies announced an expanded partnership in June. Then, at VMworld 2010 in early September, VMware and Novell announced the general availability of SUSE Linux Enterprise Server for VMware, as the first step in that partnership. 

With SUSE Linux Enterprise Server for VMware, customers who purchase a VMware vSphere license and subscription also receive a subscription for patches and updates to SUSE Linux Enterprise Server for VMware at no additional cost. And VMware offers customers the option to purchase technical support services for SUSE Linux Enterprise Server for Vmware. The idea here is to reduce the cost and complexity of deploying and maintaining an enterprise operating system running on VMware vSphere.

 Joe Wagner, senior vice president and general manager for global alliances at Novell, says that “SUSE Linux Enterprise Server for VMware is the logical choice for VMware customers deploying and managing Linux within their enterprise. This agreement is also a strong validation of Novell's strategy to lead in the intelligent workload management market.”

Gartner blogger Chris Wolf on Sept. 16 wrote that in announcing that a SUSE Linux Enterprise Server license would be included with vSphere licenses, VMware also talked about how it would train its support organization to offer SUSE Linux support. “The fact that VMware was making an investment in its support organization hinted at the potential of a larger deal,” says Wolf.

“In addition, VMware stated that its virtual appliance authoring tool, VMware Studio, would eventually offer SUSE Linux as the default VMware appliance OS. This marked a significant departure from VMware’s own Just Enough OS (JeOS) operating system,” Wolf adds.

Wolf goes on to write that an acquisition by VMware of Novell would make sense given JeOS hasn’t received widespread acceptance in the enterprise. And he adds that while VMware competitors Microsoft, Oracle (News - Alert) and Red Hat offer hypervisors as part of solutions based on their own operating systems, VMware “is at the mercy of OS vendors and it’s understandable that its competitors would optimize their own OSs to work best with their hypervisor offerings.”

While Novell has some attractive solutions, the company has been grappling with falling revenues. Net income in the third quarter fell to $15.7 million, or 4 cents per share, from $16.7 million, or 5 cents per share, from a year ago. Revenue dropped 8 percent to $199 million from $216 million. Of course, Novell attributed that to “customer uncertainty over the company's possible sale.”

The company’s board on March 20 authorized a review of various alternatives to enhance stockholder value. According to that announcement: “These alternatives include, but are not limited to, a return of capital to stockholders through a stock repurchase or cash dividend, strategic partnerships and alliances, joint ventures, a recapitalization and a sale of the company.”

This move by the board came in the wake of Novell’s rejection of Elliott Associates L.P.’s proposal to acquire the company for $5.75 per share in cash, an offer the company called inadequate.
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Edited by Jaclyn Allard