Novell's IRC session on the Microsoft deal [LWN.net]

Novell's IRC session on the Microsoft deal

Posted Nov 28, 2006 10:39 UTC (Tue) by job (guest, #670)
Parent article: Novell's IRC session on the Microsoft deal

One thing I really want to know is this:

Is it correct that the $350M payment from Microsoft is a one-time payment? In that case the $40M royalty (that's Novell's words, not mine) per year in the opposite direction is very significant. Is this to be regarded as a loan, or does Novell simply not count on lasting more than 8 years?

Microsoft sunk $50M into Baystar/SCO for implying that Linux has a per unit royalty ascribed to it, but quickly got out when IBM turned it into a PR coup. Getting one of the bigger Linux vendors to do this work for them for $350M must be considered a very good deal.

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Novell's IRC session on the Microsoft deal

Posted Nov 28, 2006 15:49 UTC (Tue) by pzb (subscriber, #656) [Link]

> Is it correct that the $350M payment from Microsoft is a one-time payment?
> In that case the $40M royalty (that's Novell's words, not mine) per year
> in the opposite direction is very significant. Is this to be regarded
> as a loan, or does Novell simply not count on lasting more than 8 years?

The terms, as published in a SEC filing by Novell, say that Microsoft will pay:
- $240 million for SLES subscription "certificates". Novell has suggested that there will be approximately 70,000 certificates per year over five years. This is about $686 per certificate. The normal cost for a one year subscription to SLES on non-mainframe hardware, including support, is either $799 or $1499. So this seems like a faily good deal, especially if they are for the higher level of support
- Microsoft will make an up-front net payment to Novell of $108 million [...] under the Patent Cooperation Agreement. My understanding of this is that the $108M is an up front payment of the payments Microsoft would have made over the 5 year terms for percentages of their revenue on some of their products. If you use a conservative discount for prepayment, this is worth at least $120M.

According to the same SEC filing, Microsoft has agreed to spend:
- $12 million annually for marketing Linux and Windows virtualization scenarios ($60M over five years)
- $34 million over the term of the agreement for a Microsoft sales force devoted primarily to marketing the combined offering

Although Novell will not directly see this money, as Microsoft is spending their own money, it is about $94M over five years being spent to help market and sell Linux, specifically SLES.

As for payments and expenditures from Novell, the only amount listed in the filing is:
- Novell will make ongoing payments of at least $40 million over five years to Microsoft based on percentages of Novell's Open Platform Solutions and Open Enterprise Server revenues. This means that Novell will pay at least approximately $8 million per pear, based on their revenues from NetWare and SUSE Linux products. (OPS is the Novell name for Linux, and OES contains NetWare and SLES)

So, only focusing on the patent agreement, this is almost guaranteed cash-positive for Novell. Add to that the $240 million of "certificates" that Microsoft is buying, and Novell is getting lots of money. They only way that this would signficantly change would be if Novell suddenly saw a huge uptick in NetWare and Linux revenues, which means they would pay more to Microsoft. I think Novell would be very happy with this, as it means sales are way up, which makes Wall Street happy, and allows more money to be spent on product development.

Novell's IRC session on the Microsoft deal

Posted Nov 29, 2006 8:48 UTC (Wed) by job (guest, #670) [Link]

I'm sorry, I made it look worse than it really is by typing $40M/yr instead of $40M/5yr. But the money is still there and it's a recurring payment for a "royalty". Will the payment continue after the 5 years? For how long?

These are very simple questions that Novell needs to address but they keep evading them.

We already knew about the Microsoft cooperation with Xen, that is old news. If only $240M is hard cash that Novell will see from this deal, it was even cheaper than I imagined.