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Novell Reports Financial Results for Fourth Fiscal Quarter and Full Fiscal Year 2005

Net revenue grows seven percent to $320 million, Linux subscriptions more than triple to 65,000, and Identity solutions grow 35 percent year over year

WALTHAM, Mass. | December 1, 2005

Novell, Inc. (NASDAQ:NOVL) today announced financial results for its fourth fiscal quarter and fiscal year ended Oct. 31, 2005. For the quarter, Novell reported revenue of $320 million, compared to revenue of $301 million for the fourth fiscal quarter 2004. Net loss available to common stockholders in the fourth fiscal quarter 2005 was $5 million or $0.01 loss per diluted common share. This compared to net income available to common stockholders of $15 million, or $0.03 per diluted common share, for the fourth fiscal quarter 2004.

On a non-GAAP basis, adjusted net income available to common stockholders for the fourth fiscal quarter 2005 was $33 million, or $0.07 per diluted common share, which excludes restructuring charges of $38 million, impairments of investments and intangible assets of $2 million and adjustments for income taxes, debt interest expense and the allocation of earnings to preferred stockholders. This compares to non-GAAP adjusted net income available to common stockholders for the fourth fiscal quarter 2004 of $25 million, or $0.06 per diluted common share, which excludes restructuring charges of $9 million and net investment impairments of $1 million.

For the full fiscal year 2005, Novell reported revenue of $1.198 billion and diluted net income available to common stockholders of $378 million, or $0.86 per diluted common share, including a $448 million net legal settlement with Microsoft. Comparatively, revenue for the full fiscal year 2004 was $1.166 billion and diluted net income available to common stockholders was $31 million, or $0.08 per diluted common share.

During the fourth fiscal quarter 2005, Novell recognized Linux* platform revenue of $61 million, which was up 418 percent from the year ago quarter. Linux platform revenue included $46 million from sales of Open Enterprise Server (OES) and $15 million of revenue from other Linux products and services. Sales of stand-alone subscriptions to SUSE® Linux Enterprise Server (SLES) totaled 65,000 subscriptions in the quarter, excluding subscriptions sold under enterprise-wide licensing deals, up 137 percent sequentially and 216 percent on a year over year basis. For the full fiscal year 2005, Novell reported Linux platform revenue of $148 million, up 278 percent from fiscal 2004.

During the fourth fiscal quarter 2005, Novell recognized $84 million of Identity-driven computing revenue, up 35 percent year over year. Identity-driven computing revenue for the full fiscal year 2005 totaled $258 million, an increase of 14 percent year over year.

"We are very pleased with the strong finish we had in this fiscal year," said Jack Messman, Chairman and CEO of Novell. "Our quarterly revenue and profitability on a non-GAAP basis were the highest Novell has achieved for several years. We've made steady progress over the past two years in transforming Novell, including hiring key executives, restructuring our field operations and focusing our business on the Linux and Identity markets. While we are not yet fully complete in that transformation and we still have operational hurdles ahead of us, we enter fiscal year 2006 better prepared to take advantage of our growth opportunities in Linux and Identity."

Cash, cash equivalents and short-term investments were $1.7 billion at Oct. 31, 2005, up from $1.6 billion at July 31, 2005. Days sales outstanding (DSO) in accounts receivable was 81 days at the end of the fourth fiscal quarter 2005, up from 77 in the year ago quarter. Deferred revenue was $406 million at the end of the fourth fiscal quarter 2005, up $32 million or eight percent from the prior year. Cash flow from operations was $58 million for the fourth fiscal quarter 2005, up from $52 million in the fourth fiscal quarter 2004.

Full details on Novell's reported results, including a reconciliation of the non-GAAP adjusted results, are included in the financial schedules that are a part of this release.

With regard to the previously announced common stock repurchase plan, Novell has not repurchased any of its common stock to date because it has been continuously subject to self-imposed trading blackouts since the share repurchase program was announced on Sept. 22, 2005.

Financial Outlook

Novell management provided the following financial guidance:

  • Net revenue for the first fiscal quarter 2006 is expected to be between $260 and $270 million.

  • Net income per diluted common share for the first fiscal quarter 2006 is expected to be between $0.02 and $0.03, excluding an estimated $0.03 per share expense from adoption of the new stock-based compensation accounting standard.

  • The previously announced restructuring is expected to negatively impact revenue by approximately $40 to $50 million in the full fiscal year 2006, excluding continued expected revenue declines in Novell's legacy Workgroup businesses.

  • Novell is targeting operating margins between 12% and 15% for fiscal year 2008.

A summary of Novell's vision, mission and strategy can be accessed on the Novell® Web site at: http://www.novell.com/company/ir/qresults/.

Conference call notification and Web access detail

A live Webcast of a Novell conference call to discuss the quarter will be broadcast at 5:00 PM EST Dec. 1, 2005, from Novell's Investor Relations Web page: http://www.novell.com/company/ir/qresults/. The domestic conference call dial-in number is 866-335-5255, password "Novell", and the international dial-in number is +1-706-679-2263, password "Novell".

The call will be archived on the Web site approximately 15 minutes after its conclusion, and will be available for telephone playback through midnight ET, Dec. 14. The domestic toll-free replay number is 800-642-1687, and the international replay number is +1-706-645-9291. Replay listeners must enter conference ID number 2116994.

A copy of this press release is posted on Novell's Web site at: http://www.novell.com/company/ir/qresults/.

Legal notice regarding forward-looking statements

This press release includes statements that are not historical in nature and that may be characterized as "forward-looking statements," including those related to future financial and operating results, benefits and synergies of the company's brands and strategies, future opportunities and the growth of the market for Identity-driven computing and Linux and Platform solutions. You should be aware that Novell's actual results could differ materially from those contained in the forward-looking statements, which are based on current expectations of Novell management and are subject to a number of risks and uncertainties, including, but not limited to, Novell's ability to integrate acquired operations and employees, Novell's success in executing its Linux and identity and resource management strategies, Novell's ability to take a competitive position in the Linux and identity and resource management industries, business conditions and the general economy, market opportunities, potential new business strategies, competitive factors, sales and marketing execution, shifts in technologies or market demand and the other factors described in Novell's Post-Effective Amendment No. 5 to Form S-3 filed with the Securities and Exchange Commission on Oct. 14, 2005. Novell disclaims any intention or obligation to update any forward-looking statements as a result of developments occurring after the date of this press release.

About Novell

Novell, Inc. (Nasdaq: NOVL) delivers Software for the Open Enterprise™. With more than 50,000 customers in 43 countries, Novell helps customers manage, simplify, secure and integrate their technology environments by leveraging best-of-breed, open standards-based software. With over 20 years of experience, more than 5,000 employees, 5,000 partners and support centers around the world, Novell helps customers gain control over their IT operating environment while reducing cost. More information about Novell can be found at http://www.novell.com.

Novell and SUSE are registered trademarks, and Software for the Open Enterprise is a trademark of Novell, Inc. in the United States and other countries. * Linux is a registered trademark of Linus Torvalds. All other third-party trademarks are the property of their respective owners.


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