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Take a look at Novell (NOVL). Down from almost $10 to $7.30 in about a month. And, a nice slug of analyst downgrades. Novell has a market cap of a little over $2.8 billion, and $1.7 billion in cash and short-term investments. Novell has some debt, but not much compared to assets. So, net of cash, it's under a $4 stock.

Perhaps it deserves to be this low. The quarter ending January 31, revenues dropped slightly to $275 million and the business did little more than breakeven. The forecast for the current quarter is really no better.

But, Linux could save the day here. At least enough to get the stock back to a respectable number, and by that I mean $10 or $12.

Linux has been underestimated by the investment community, at least until lately. The rise of Linux software champion Red Hat (NASD:RHAT) from $10 to $30 this year gives it a price-to-sales ration of 19. IBM (NYSE:IBM) and Sun Micro (NASD:SUNW) are embracing Linux like a long-lost brother. IBM now claims to have over 12,000 Linux customer engagements (http://www-1.ibm.com/linux/). IDC predicts that revenue from Linux desktop, server and packaged software will exceed $35 billion by 2008.

Sales from Novell's Open Platform Solutions, which includes its Linux initiatives, rose 4x in the first fiscal quarter of 2006 to $54 million. This is a good early indication that their Linux initiatives are on the right track.

Is there execution risk here? Yes, management needs to prove that it can turn over its customer base to a Linux product set and get new business from competitors. The relatively low costs of Linux, its large developer community, and the view of Linux as an alternative to Microsoft all work in Novell's favor. So, it's blocking and tackling time.

Most of the bad news about Novell seems built into the stock price. Very little of the potential success of the new business model is. That makes it worth another look.

Douglas A. McIntyre is the former Editor-in-Chief of Financial World Magazine. He was also the president of Switchboard when it was the 10th most visited website in the world and was chief executive of On2 Technologies, Inc. He does not own securities in this company.

Source: Can Novell Get Its Act Together? (NOVL)