Novell has posted a $16m loss for its first quarter as revenues showed only a limited increase from $294m to $297m.

The company said that sales of the NetWare suite of products are declining at a faster rate than expected, and that sales of Linux products were disappointing. Novell sold 19,000 units of its SuSE Linux Enterprise Server.

"Our results this quarter reflect the significant investments we are making to reposition Novell," said chief executive Jack Messman.

"I am confident that these investments will lead to increased customer acceptance of our solid solution offerings in the Linux and identity driven computing segments."

While Novell makes the transition from a networking business to a Linux services company, it is relying heavily on its installed base of NetWare users to subsidise the investments in open source software.

The vendor acquired SuSE in November 2003. Although reliable market share research is hard to come by, the SuSE distribution is considered to be the second largest in the world after Red Hat.

Investors were disappointed with Novell's results. The share price dropped 7.5 per cent after the earnings release, and is down 44 per cent from this year's high.