Novell, Inc. (NDAQ: NOVL) shares moved sharply higher after the company reported better-than-expected earnings in its latest 8-K filing with the sEC. Shareholders were surprised by a swing to profitability as well as strong growth in its Linux business. Meanwhile, many are looking forward to seeing how the company will integrate its new acquisitions as potential upsell opportunities to expand revenues even further. So, what does the future hold for this once-struggling technology company?

Novell reported revenues of $231 million on net income of $8 million profit in the first quarter. This compares to revenues of $218 million on a net loss of $21 million during the same time period last year. The swing to profitability caught many investors by surprise as the company was boosted by strong performance from its Linux platform business, which grew 65 percent year-over-year. However, the majority of its revenues were still derived fromits workgroup products, which grew a modest 1 percent year-over-year.

“We are very pleased with our results this quarter. We delivered product revenue growth across all business units and continued expense control this quarter,” said Ron Hovsepian, President and CEO of Novell. “These results are indicative that our strategic initiatives are yielding tangible results and that we are on the right path to achieve long-term, sustainable profitability.”

Novell’s partnership with Microsoft is one of the main drivers for growth in its Linux platforms business. Although they are only into the second year of the deal, Novell has already earned $141 million from the arrangement - or 59 percent of what the five-year agreement stipulates. There is also a lot of opportunity for upselling inside of those relationships, which could prove to be even more of a boost in the future. And finally, Novell also sees opportunity with the launch of Microsoft’s new Windows Server 2008, which it sees as an opportunity to attack Microsoft’s installed base.

“Microsoft is managing the outward competition, but they are also managing their older installed base and the different versions that they are on,” Hovespian said. “We see that as opportunity for our company to attack that installed base. I’m sure the competitive fires will remain strong between both companies.”

The majority of today’s stock price movement, however, likely comes from Novell’s strong guidance. The company upped its guidance for 2008 with revenues now slated to be between $940-970 million compared to prior estimates of $920-945 million. Meanwhile, the company expects operating margins to be between 7 and 9 percent excluding all acquisition-related intangible asset amortization. This is far higher than what many analysts were expecting and may even be raised in the future if the company continues to see stronger growth on the heels of its Linux platforms division.

In the end, this is all great news for shareholders as Novell continues to push forward. Shareholders are not only looking towards solid growth in its Linux business but also for the results of the firm’s acquisitions of virtualization management vendor PlateSpin and open source collaboration vendor SiteScrape earlier this month. It will be interesting to see how the company integrates these businesses as more potential upsell opportunities. Combined, these factors make NOVL a stock that is definitely worth watching!

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3Com Corp. (NASDAQ: COMS) is up almost 20% on reports that Bain Capital LLC and Huawei Technologies Co. plan to reapply for U.S. regulatory approval to buy the network-equipment maker.

The financial terms of the original deal probably won't change much - a $2 billion price, 85% stake for Bain and the remaining minority share of Huawei. The difference is Huawei would not have access to sensitive technologies that blocked the deal in the first place.

Last week, the deal fell apart because a little-known wing of the Treasury Department known as the CFIUS appeared likely to block the acquisition. As SECInvestor's earlier article said on the matter:

"Huawei, the largest network company in China with strong ties to the country's Communist government, has been accused in the past of selling communications equipment illegally to rogue states such as Saddam Hussein's Iraq. In addition, the company raises concerns even superficially as it is run by a former Chinese Army Officer.

3Com provides some network security solutions to the U.S. Defense Department, and with Chinese hackers seen as a major threat to U.S. infrastructure this acquisition was a hot political issue. In fact, the senior Republican member of the House Foreign Affairs Committee even sponsored a bill to specifically prevent 3Com's sale.

Under such scrutiny, Bain decided to drop its request for approval of the deal by the CFIUS, effectively meaning the deal is dead in its current form. The problematic Defense Department business is actually done only by a small wing of 3Com known as TippingPoint, and there is a possibility the deal could be renegotiated to exclude that unit."

Though it seemed likely that Bain would be just as happy to leave the deal dead given the state of the economy and 3Com's rather weak business currently, instead the firm may look to capitalize on the regulatory hurdles in order to secure a lower purchase price. With 3Com's core business still a distant second to giant Cisco Systems (NASDAQ: CSCO), even a deal at a lower price is good news for 3Com shareholders.

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Dell Inc. (NDAQ: DELL) shares fell sharply today after the company announced disappointing results in it’s latest 8-K filing with the SEC. The computer-maker cited high-than-expected costs as the reason behind its earnings shortfall despite laying off 3,200 employees and taking other cost-cutting measures. Many shareholders are now questioning the company’s ability to execute upon its long awaited turnaround plan that is now facing another setback. So, is Dell a stock worth buying at these depressed levels or perhaps more of a short candidate than anything else?

Many investors are concerned about the chronic cost increases that Dell faces in the computer hardware business. During the fourth quarter, the company saw its revenues expand 10% while its operating income and net income both fell by 6%. This is a clear indication that profitability was waning due to either increased costs or lower selling prices. Gone are the days where Dell’s superior inventory management and online selling provided it with a competitive advantage. Now, even Dell faces lower selling prices across the board while its costs are going up due to expansion outside of pure Internet sales.

“While Dell continues to drive towards a world-class cost structure and competitiveness we have much work to do,” Mr. Dell said. “Resurgent growth puts us on a strong footing to improve our cost position, scale expenses and enhance productivity across our business. I am confident that from this base we can continue to drive improvements in profitability.”

The kicker was a short outlook where the company stated that it will “continue to incur costs as it realigns its business to improve growth and profitability” which may “adversely impact the company’s near-term performance”. Dell also hinted that it expects a slowdown in consumer demand as customers display more “conservative spending” as a result of the credit crunch. Combined, these comments are likely what sent shares down today as investors now know that they shouldn’t expect results to improve at all in the near-term.

The one bright spot in its future is sales growth seen in countries outside of the United States, which was up 16 percent and now account for nearly half of the company’s total revenues. Growth was particularly strongin BRIC (Brazil, Russia, India, China) countries where revenues grew 36 percent on a 50 percent increase in units. Meanwhile, Asia Pacific countries and Japan saw revenue growth of 28 percent while Americas International revenue grew 22 percent. Dell will likely continue to rely on strong growth abroad to offset what will obviously be lower sales in the US as consumer credit continues to be a problem.

In the end, this is another disappointing quarter for Dell shareholders. The company’s old paradigm no longer works in today’s world and we have yet to see if it can adapt and turn itself around. Overseas growth in emerging markets has done exceptionally well, but the company will need to reign in its costs before it can regain any trust. Regardless, it is a stock that is definitely worth watching over the next year or so as it attempts to maneuver a turnaround!

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