Novell: Earnings Preview

| About: Novell, Inc. (NOVL)

A leading technology software company, Novell Inc. (NASDAQ:NOVL) is set to announce its fourth quarter results soon. According to the Zacks Consensus estimates, earnings are expected to be 6 cents a share.

Novell expects to maintain double-digit adjusted operating margins for the full year 2009. The company expects the fourth quarter revenue run rate to be slightly below third quarter levels, but also expects the identity business to grow.

The company reported mixed third quarter results, with revenue slightly below the Zacks Consensus expectations and adjusted EPS marginally higher. Total revenue declined due to a sharp drop in software license revenue. However, earnings benefited from lower operating expenses due to cost cutting initiatives.

Novell has an outsourcing agreement with Affiliated Computer Services Inc. (ACS) and has expanded its partnership with Dell Inc. (NASDAQ:DELL), which will be positive for its growing virtualization efforts. However, pricing pressure from its major competitors such as Red Hat Inc. (NYSE:RHT), Microsoft Corp. (NASDAQ:MSFT) and Oracle (NASDAQ:ORCL) in the virtualization business may hurt the company.

While the current outlook and weak demand continue to reflect the uncertain economic conditions, affecting Novell’s business, we believe this is only a temporary phenomenon and the long-term growth story remains intact.

We remain positive on Novell’s strong operating margins and continued focus on cost reductions. We maintain our Neutral rating on the stock.