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Novell Reports Financial Results for Third Fiscal Quarter 2005

WALTHAM, Mass. | August 25, 2005

Novell, Inc. (NASDAQ:NOVL) today announced financial results for its third fiscal quarter ended July 31, 2005.  For the quarter, Novell reported revenues of $290 million, compared to revenues of $305 million for the third fiscal quarter 2004.  Net income available to common stockholders in the third fiscal quarter 2005 was $2 million or $0.00 earnings per diluted common share. This compared to a net income available to common stockholders of $24 million, or $0.06 per diluted common share, for the third fiscal quarter 2004.

On a non-GAAP basis, adjusted net income available to common stockholders for the third fiscal quarter 2005 was $14 million, or $0.03 per diluted common share, excluding restructuring charges of $9 million and excluding a net gain of $1 million on the sale of previously impaired long-term investments. This compares to non-GAAP adjusted net income available to common stockholders for the third fiscal quarter 2004 of $14 million, or $0.03 per diluted common share, which excluded the effect of the payment from Canopy of $19 million as a result of a legal judgment in favor of Novell, restructuring charges of $9 million, and long-term investment impairments of $1 million.  In the third fiscal quarter of 2004, $14 million of the Canopy payment was recorded as revenue and the remaining $5 million as interest income. 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.

In the third fiscal quarter 2005 as compared to the prior year's period, foreign currency exchange rates favorably impacted total revenue by approximately $4 million and did not have a material impact on net income.

During the third fiscal quarter 2005, Novell recognized Linux-related product revenue of $44 million, including $31 million from sales of Novell Open Enterprise Server (OES) and $8 million from subscriptions to SUSETM LINUX Enterprise Server (SLES). OES revenue of $31 million reflects the first full quarter that OES was available. Sales of stand-alone subscriptions to SLES totaled 28,000 subscriptions in the quarter.

For the first nine months of fiscal 2005, Novell reported revenue of $877 million and net income available to common stockholders of $382 million, or $0.88 per diluted common share, including a $448 million net legal settlement with Microsoft. For the first nine months of fiscal 2004, which includes the Canopy payment, the company reported revenue of $865 million and net income available to common stockholders of $18 million, or $0.05 per diluted common share.

“Customers continue to embrace Novell's Linux and Identity solutions,” said Jack Messman, Chairman and CEO of Novell. “We were particularly pleased with our initial penetration of the Chinese market where Linux is an attractive technology for government and commercial users. Our increasingly customer-focused, go-to-market approach is leading to a stronger Novell as evidenced by our positive operating cash flow and growth in deferred revenue in the quarter. While we were profitable this quarter, we still have improvements to make in our business which will lead to cost reductions. ”

On the balance sheet, cash and short-term investments were $1.6 billion at July 31, 2005, consistent with $1.6 billion at April 30, 2005. Days sales outstanding (DSO) in accounts receivable was 77 days at the end of the third fiscal quarter 2005, consistent with the year ago quarter.  Deferred revenue was $365 million at the end of the third fiscal quarter 2005, up $28 million or 8% from the prior year. Cash flow from operations was a positive $15 million for the third fiscal quarter 2005, down from $65 million in the third fiscal quarter 2004, which included the $19 million payment from Canopy.

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 5PM ET August 25, 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, September 7.  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 8265930.

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

open source and identity management 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 management strategies, Novell’s ability to take a competitive position in the Linux and identity 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 Annual Report on Form 10-K filed with the Securities and Exchange Commission on January 13, 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.

testNovell is a registered trademark of Novell, Inc.; and SUSE 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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