By dint of 12% lower operating expenses, Novell managed to more than double its fiscal second-quarter earnings from $5.9 million or two cents a share this time last year to $15.6 million or five cents a share. Revenues however dropped 9% to $215.6 million.

Revenue from its Linux Platform Products, however, increased 25% year-over-year to $37 million.

The results seem counter-intuitive. IDC reported Thursday that Linux server revenue - and it's talking hardware - was only $1.4 billion in calendar Q1, its lowest level in five years.

Anyway, revenue at Novell from identity and security management was $30 million, of which identity, access and compliance management was $28 million, up 2%. Systems and resource management hit $40 million, down 2%. Workgroup product revenue was $79 million down 14%.

Novell CEO Ron Hovsepian said, "Our Linux and identity businesses have the greatest potential to continue to expand operating margins, and we plan to attain profitability within these businesses no later than 12-18 months from today, barring unforeseen circumstances."

Novell has a billion dollars in the bank. Total deferred revenue was $659 million at the end of the quarter, down from $702 million last year.

Cash flow from operations was a negative $26 million, in line with seasonal trends. This compares to cash flow from operations of a negative $19 million in the second fiscal quarter of 2008.

In a statement that passes for guidance these days the company said it "remains committed to long-term sustainable profitability. Novell management expects to maintain double-digit non-GAAP operating margins in the full fiscal year 2009, barring unforeseen circumstances."

Meanwhile, Novell appears to have found a new source of revenue and a new route to market as well as a way to save money.

It's going to outsource part of its internal IT operations to Affiliated Computer Services (ACS) as part of a $135 million five-year contract. ACS will in turn buy at least $30 million worth of Novell products during the first three years of their arrangement.

A Fortune 500 outsourcer represented in a hundred countries, ACS will leverage Novell products to support its ACS Management Platform (AMP), the delivery platform for its portfolio of global IT outsourcing service offerings, and plans to enhance AMP with capabilities that support cloud computing, auto provisioning and process automation.

The widgetry it buys off of Novell will include the SUSE Linux Enterprise operating system, Platespin workload management, business service management, and identity and security solutions.

In turn, Novell plans to enhance its solution portfolios by leveraging ACS' experience with a large and diverse customer base.

They're each supposed to invest in joint engineering, technology, sales and marketing initiatives.

ACS is also supposed to enhance Novell's global data center operations and provide SAP consulting and applications development and maintenance system integration services.

Novell says the IT outsourcing arrangement will enable it to focus on its core business. ACS will take over Novell's IT operation in Provo, Utah and 156 Novell employees, including infrastructure and application development and maintenance services operations.