Monthly Research Update

Experton Group Weekly IT News

Dell and Novell Report Financials; CodeGear Changes Hands

By: Cal Braunstein

Dell Inc. reported decent first quarter results while Novell Inc. turned a profit in its second quarter due to reduced costs and a rise in its Linux sales.  Earlier last month Borland Software Corp. sold its CodeGear division to Embarcadero Technologies Inc.

Focal Points:

• Dell reported total revenues for the first quarter increased nine percent year-over-year to $16 billion. Net income for the quarter expanded four percent on a GAAP basis was $784 million or $0.38 per diluted share. Product shipments overall rose 22 percent from a year ago, with notebook shipments rising 43 percent, or 1.2 times the industry growth rate, according to officials at Dell. Shipments of server computers increased 21 percent, or three times the industry rate while storage revenue increased 15 percent. U.S. revenues were flat for the quarter while revenues outside the United States grew to surpass U.S. revenues for the first time. Brazil, Russia, India, and China (the BRIC countries) led with a combined growth of 73 percent year-over-year in shipments and 58 percent in revenue.
• Novell, the second largest seller of Linux software after Red Hat, Inc., stated its total revenues for the second quarter increased two percent year-over-year to $236 million. Net income for the quarter on a GAAP basis was $5.9 million versus a year-earlier loss of $2.9 million. Sales of Linux software and other programs in Novell's open platforms group rose 31 percent to $30 million. The increase helped offset a 1 percent drop in sales at its workgroup networking software division to $92 million.
• Embarcadero announced it signed a definitive asset purchase agreement with Borland to purchase its CodeGear division. The transaction is expected to close in 30 to 60 days. The combined companies will have more than $100 million in annual revenue and over 500 employees worldwide and will operate under the Embarcadero Technologies name. According to the company, the acquisition is expected to make Embarcadero the world's largest independent software provider offering an integrated portfolio to design, develop, manage and optimize heterogeneous applications and their databases. Embarcadero expects to pay approximately $23 million to Borland for the CodeGear assets while Borland will retain existing CodeGear accounts receivables. The transaction is expected to close by June 30, 2008.

Experton Group believes the technology sector remains strong, especially outside of the U.S., which will enable opportunities for growth for commodity and open source providers. Business growth, and the need for energy savings and productivity improvements, will bode well for technology vendors that can demonstrate short-term financial justification for their solutions. The Embarcadero acquisition will better position the company to address the growing productivity and resource challenges companies face with a more complete set of application development and database tools. IT executives should evaluate technology products on both financial and functional criteria including requirements for rapid integration into the operational environment and conformance to strategic target architectures and standards.