05.30.09
Novell’s 2009 Q2 Results
Summary: Revenue is down $20 million, but Novell claims a $15.6 rise (in net)
OUR initial report about Novell’s latest results can be found here. A lot of the mainstream media parroted Novell’s press release and “quick claims”, so little attention was paid to Novell’s problems (for instance, the company has just begun offshoring some more). For completeness, here is some coverage we have not gone through yet.
Ahead of the Results
Early in the month, the Microsoft-centric Barron’s mentioned Novell positively.
Today, only four S&P stocks — Boston Scientific (ticker: BSX), Compuware (CPWR), Novell (NOVL) and Tellabs (TLAB) — would match our screen’s criteria. They’re all under $10, have the requisite debt ratios, and are expected to boost earnings this year, albeit slightly.
Another pro-Microsoft publication, Motley Fool to be precise, wrote the following about Novell:
A few of the big names on the slate on this day are Costco (Nasdaq: COST) and Novell (Nasdaq: NOVL). One of them is projected to post a drop in year-over-year profitability. Can you guess which one? Well, it’s a trick question. Novell is actually supposed to match the $0.06-a-share profit it posted last year. It’s actually Costco and its warehouse clubs, which seem to be resistant to recessions, that is targeted to post a decline in net income.
MarketWatch wrote about Novell’s expected results shortly before they came out and Yahoo added Novell to the list of earnings announcements for Thursday, May 28th.
Novell Inc. /quotes/comstock/15*!novl/quotes/nls/novl is projected to post a fiscal second-quarter profit of 6 cents a share, according to analysts surveyed by FactSet Research.
More coverage:
Software service provider Novell Inc. is scheduled to announce its second-quarter results after the bell on Thursday. Wall Street analysts have forecast flat earnings for the quarter while revenue is expected to decline year-over-year.
ii. TheFortuneFinancial.com Initializes Free Analyst Research on SWKS, CSUN, NOVL and ATML
Today, we have asked some of the top analysts worldwide to give us their updated feedback regarding the current market activity and position on Skyworks Solutions Inc. (NasdaqGS:SWKS – News), China Sunergy Co. Ltd. (NasdaqGM:CSUN – News), Novell Inc. (NasdaqGS:NOVL – News) and Atmel Corp. (NasdaqGS:ATML – News).
iii. STOCKS NEWS US-P&G may provide cautious outlook: WSJ
Companies scheduled to report quarterly results on Thursday include: Big Lots Inc, Dell Inc, Novell Inc, and H.J. Heinz Co. Costco Wholesale Corp said third-quarter net profit fell 29 percent.
Results Arrive
Here is the press release from Novell (also in Yahoo! Finance) and the call transcript. Novell’s 8-K arrived shortly later and analyst ratings may have changed, based on Yahoo’s alert. Novell’s PR people promoted the company’s own message, which is always the most self congratulatory. Novell wants investors and reporters to see what Novell shows but not to see what Novell denies or hides. Guess what? It works.
Associated Press covered this uncritically and via MSN came a similar report. They always want to be the first to publish and speed leaves no room for critical assessment. Dow Jones/WSJ was being a little foolish. It only looks at Novell’s net, which is relatievel tiny (it’s about twice the bonus of the CEO) in order to come up with the moronic headline. It says that Novell’s net profit nearly tripled, but then again, had Novell’s profit been just 1 million a year ago, then one would come up with a sensationalist headline like “Novell profit climbs 1500%.” Wow! Wouldn’t that be something? The matter of fact is that, proportionally speaking, these numbers are small and the revenue declined almost by two digits (percentile-wise).
Novell Inc.’s (NOVL) fiscal second-quarter profit nearly tripled, helped by the stronger dollar, as the software company also posted higher margins and a sharp jump in revenue of its Linux-platform products.
MarketWatch uses the same techniques as the Rupert Murdoch press (WSJ) to exaggerate overall claims through selection. It states that “Novell second-quarter profit more than doubles” and Murdoch’s picks that up too (Fox Business).
MarketWatch also re-used some text for in-market reports, such as:
i. Tiffany, Dell, General Motors, Novell, Marvell, Office Depot
Novell Inc. /quotes/comstock/15*!novl/quotes/nls/novl (NOVL 4.20, -0.23, -5.19%) said second-quarter net income rose to $15.6 million, or 5 cents a share, from $5.9 million, or 2 cents a share, earned in the same period during fiscal 2008. Excluding one-time items, the company would have reported earnings of 8 cents a share in the latest quarter. Waltham, Mass.-based Novell said revenue for the period ended in April fell to $215.6 million from $235.7 million. Analysts on average had estimated Novell would post second-quarter earnings of 6 cents a share and $218 million in revenue, according to Thomson Reuters-compiled data.
ii. Tiffany, Dell, Marvell Technology
Novell Inc. /quotes/comstock/15*!novl/quotes/nls/novl (NOVL 4.20, -0.23, -5.19%) said its fiscal second-quarter net income rose to $15.6 million, or 5 cents a share, from $5.9 million, or 2 cents a share in the same period a year earlier. Excluding one-time items, the company would have reported earnings of 8 cents a share in the latest quarter. Waltham, Mass.-based Novell said revenue for the period ended in April fell to $215.6 million from $235.7 million. Analysts on average had estimated Novell would post second-quarter earnings of 6 cents a share and $218 million in revenue, according to data from Thomson Reuters.
iii. Dell gains, Marvel dips after quarterly reports
In the software sector, Novell Inc. /quotes/comstock/15*!novl/quotes/nls/novl (NOVL 4.23, -0.20, -4.51%) stock added almost 4% after the company said its second-quarter net income rose to $15.6 million, or 5 cents a share, from $5.9 million, or 2 cents a share, a year earlier. Excluding one-time items, the company would have reported earnings of 8 cents a share in the latest quarter. Sales fell to $215.6 million from $235.7 million.
More here:
Software service provider Novell Inc. (NOVL) reported adjusted second quarter net income at $29 million or $0.08 per share, compared to $21 million or $0.06 per share in the same period last year. The adjusted results edged out analyst estimates for earnings of $0.06 per share.
Warped Analysis
We have already explained how Novell changes the definition of SUSE revenue as more of its products are migrated to a Linux base. A lot of people totally miss this financial trick of bucket-swapping (Microsoft does this quite a lot too). As such, Matt Asay blindly accepts that Novell’s SLE* business rose by double-digit figures.
The good news? Novell reported Thursday that its Linux Platform revenue climbed 25 percent year over year in the midst of one of the worst recessions in history. Talk about Linux swimming against the economic current.
Are comparable things being measured year-to-year? Is it possible that Novell ‘beefed up’ its “Linux Platform” segment with some more products? Are there any phasing outs or transitions? These questions are only fair. It is worth remembering that Matt Asay used to work for Novell and he publicly admitted that Novell uses these tricks, which are illegal. Novell was even sued for fraud
SJVN had this to say:
As in the past, Novell remains cash-rich with cash, cash equivalents and short-term investments of about $1 billion. Looking ahead, Novell CFO Dana Russell said, in a press conference, that the company’s Linux business’ “profitability continues to move in the right direction.”
If “profitability continues to move in the right direction,” then why did Dana Russell say in this week’s earnings call that Novell plans further reductions? Is that the plan? More reductions? Rather than expansion?
There are tough questions for Novell to address. Never rely on Murdoch’s press to bring them out. The role of the business press is to shelter and glorify businesses, not to challenge them. Remember who owns this press. The media rarely funds itself through subscriptions and it can be burned to the ground if it makes allegations it cannot defend perfectly. Libel laws are a tool of censorship, much like DMCA and copyrights when abused. █
“Distrust any enterprise that requires new clothes.”
–Henry David Thoreau
JohnD said,
May 30, 2009 at 4:16 pm
“Cooking the books” refers to accounting processes where losses are hidden in order to give the illusion of profit. This is what Eron did, they moved the losses to subsidiaries in order to make the primary companies appear to have fantastic profits. This is fraud and is illegal.
Grouping profitable products together might be disingenuous, but it’s not illegal. Novell might be categorizing products under Linux to improve it’s sales percentage compared to the other categories, but there’s nothing illegal about it. The losses have been reflected in other categories and on the balance sheet as a whole.
You disparage one report because they focused on Novell’s net figure, but that’s the number that matters most. You can have gross revenue in the billions, but if your net income is zero, or less than zero – you’re screwed. The fact that Novell posted a net profit and an increase in operating margin in spite of a decline in revenue of 20 million shows that they are in a much better financial position then they were a year ago.