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Net Woes for NetWare

Written By: C. McNulty
Published On: May 22 2000

Net Woes for NetWare
C. McNulty - May 22, 2000

Event Summary

PROVO, Utah -May 2, 2000 - Novell, Inc. (NASDAQ:NOVL) announced that it will report significantly lower-than-anticipated revenue and earnings for its second fiscal quarter ended April 30, 2000. The company expects to report total revenue of over just $300 million and earnings of approximately $0.08 per share, including the benefit of a $35 million royalty payment from Caldera, Inc. the principal portion of which relates to an antitrust settlement between Caldera, Inc. and Microsoft.

Wall Street was not kind to the news. Novell stock, which had begun May at 19 15/16, was down to 45% to 10 15/16 by the end of the week.

Market Impact

NetWare isn't selling like it used to, and Novell's had a hard time seeing that. PC Week reported that Novell's internal sales forecasts were off by $10 million a week in March and April 2000. Novell is trying to transition to being a software vendor for e-business.

They've developed some good products - their eDirectory is regarded as best-of-breed for enterprise/e-business directories. [See TEC's article: Novell Uses XML, LDAP, NDS to Manage AD, IOS, etc.] But it's taking a lot longer to stop being a NetWare-centric company. Unfortunately for NetWare shops, Windows 2000 and Linux aren't giving Novell much breathing room.

This sort of news is devastating to software vendors. When even Microsoft is thinking about eliminating Novell support in its next consumer version of Windows, you've got problems. [See TEC's article: Microsoft Windows Me -- The Millennium DOES Begin in 2001.]

Novell doesn't yet have the cash flow from next generation products to make up for the fall-off in NetWare sales. Without that onetime Caldera payment, it had no income for the last quarter, and revenues were flat. In FY99, Novell revenues, by product segment were:

Novell Inc. FY 1999 Revenues By Product Line
Product Line Revenue Annual Change
NetWare 4 and NetWare 5 US$659 million +23%
NDS, eDirectory, GroupWise and related products US$315 Million +39%
Service, education and consulting US$181 Million +40%
NetWare 3 and legacy products US$118 Million -39%
Total US$1,273 Million  

NetWare 3's not coming back, and the end of Y2K-related consulting will blunt demand for services and consulting. If NetWare 5 slips (60% likelihood), it clouds Novell's ability to fund future R&D and support for NetWare. In that case, look for the company to find a buyer, or for its depressed stock price to make it an acquisition target (42% likelihood).

User Recommendations

Give Novell a year to develop its own revenue base and continue NetWare support. If sales don't improve, and Novell isn't sold or taken over, NetWare shops will need to think about transitioning to another network operating system.

 
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