But Linux also needs to boost other product lines
Novell has two objectives with its Linux offering. Firstly, it wants to provide an alternative to its legacy NetWare business and build Linux revenues faster than its legacy revenues shrink. Secondly, it wants to provide a platform upon which to build its ISM and SRM businesses by turning its Linux customers into ISM and SRM customers. Its performance against the first objective can be best described as adequate. However, performance against the second objective based on its latest figures is definitely worrying. For example, although Linux revenues were up in the quarter, ISM and SMR revenues continued to shrink and were down 18 per cent and 15 per cent respectively.
ISM software licence revenues plunged 52 per cent, about the same drop as the first quarter (when they shrunk 53 per cent) after a slight improvement (still down 19 per cent) in the second quarter. However, SRM continues to be the biggest disappointment, down despite a string of acquisitions in 2008 (PlateSpin and Managed Objects). SRM software licence revenues shrunk 51 per cent in the third quarter following a milder drop of 23 per cent in the second quarter and an increase of 15 per cent in the first quarter.
On the brighter side, Novell did mention some positives for the quarter, including the addition of new partners and a cloud security offering for its ISM business, and a new relationship with Dell for the SRM business. But these need to translate into renewed growth fairly quickly if Novell is to turn around its current performance. The less Novell manages to leverage its Linux business to grow ISM and SRM, the more likely it will eventually have to split itself into separate independent entities.
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