BT and Red Hat throw Novell a crucial financial lifeline

Novell has been handed the chance to pull back from the brink after two huge deals with British Telecom and rival Red Hat.

Sales of Novell's flagship products NetWare and NDS have plummeted in the last quarter, with the supplier seeing net profits slump by 83 per cent compared with the same quarter last year.

But BT has said that the telco would use Novell rather than Windows or Linux because it was important to have scalable systems managed from a single location across a variety of platforms.

Ashok Patel, strategy and design manager at BT said: "Further deployment of directory-enabled technology will allow us to improve service and reduce cost."

The deal should prove to be a shot of oxygen to Novell and provide a long-term source of stability for a company that has been under so much fire recently. The agreement also covers any partner companies in which BT has a majority share.

A second lifeline came from Linux distributor Red Hat, which announced that it has gone with Novell's NDS as the directory platform for its new Red Hat Network service. This gives Novell some breathing space following a bad year of job cuts and industry criticism.

Eric Schmidt, Novell's chief executive, believes the company will seriously consider giving away NDS but no decision has been reached. He said: "Novell's announcement with Red Hat is a step in the open source direction."

The move is the first sign that Novell may be warming to open source.

Analyst Sharon Saw, of Saw IT, said: "Novell has been dying a hideous, slow death in the battle to compete with Windows NT and Windows 2000. While its software was once seen as the core backbone of any large company, now businesses are turning more towards NT solutions and Linux."

"While Novell has concentrated on file and print, the market moved towards integration. Its Directory Services started to come under threat from Microsoft's Active Directory services, previously not considered a real alternative to NDS," she said.

"BT have decided to bestow their blessing on the beleaguered company by signing."