Novell earned $23 million, or six cents a share, on revenues of $305 million in its fiscal third quarter ended July 31.

It derived $12 million in revenues from its presumably unprofitable SUSE Linux business: $4 million from enterprise maintenance subscriptions, $5 million from retail and $3 million from technical support, alliance fees and other software products.

Novell said sales of SUSE Linux Enterprise Server (SLES) subscriptions reached 19,000 units in the quarter, with 12,000 units sold to one unnamed customer, compared to 3,800 units sold in the quarter before. Excluding that one big transaction, the units sold were reportedly split evenly between new deals and renewals.

Novell said excluding 2,000 units that were sold at a lower price under a special renewal contract, the average selling price of SUSE Linux Enterprise Server was $470. However, most of the revenues associated with the units that it sold will be recognized over the life of the subscription contracts.

"We believe our Linux transactions would have been higher but several OEMs waited for SLES 9 rather than start with SLES 8," Novell CEO Jack Messman said. "Microsoft's actions validate our Linux strategy every day."

Novell's overall results include a one-time payment of $19 million from the Canopy Group, SCO's main backer, as a result of a favorable legal judgment.

Excluding the Canopy money, $9 million in restructuring charges and a million bucks in investment impairment charges, Novell's net income on a non-GAAP basis was $14 million, or four cents a share, a penny below Wall Street's consensus.

Last Q3, Novell lost $12 million, or three cents a share, on revenues of $283 million.

Messman acknowledged that "Revenue was not as strong as we'd have liked."

According to him, the company experienced a larger-than-expected decline in its waning NetWare business and weakness in Europe beyond the typical seasonal slowdown.

New software licenses brought in $58.69 million and maintenance and services accounted for $245.9 million.

Novell's revenues from its identity management and Web services side grew 2% year-over-year to $26.72 million.

Revenues from cross-platform services, which include management and collaboration products as well as the services platform and storage offerings, increased to $159.2 million thanks to the Canopy payment and SuSE's revenues.

NetWare-related revenues were down 12% year-over-year. "Q3 results for NetWare-related revenues represented a bump in the road for our strategy of using Linux initiatives to reduce the rate of decline in our NetWare business," Messman told analysts. Novell expects migration off of NetWare to ease when its Open Enterprise Server is launched later this year.

Worldwide services, which includes IT consulting, customer support and training, brought in $74.9 million and accounted for 24.6% of total revenues. Novell claimed its consulting backlog is growing.

Novell also claimed it is still in the investment phase with both Linux and identity management.

"The market environment for software products and services is still very challenging," Messman said.

Novell did not provide revenue or earnings guidance for the current quarter citing the uncertainty in the IT marketplace, the bumpiness in the NetWare transition and its focus on Linux and identity management products.

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