Novell must be sick of it. The negative reaction from markets and analysts, the constant takeover rumours, the crowing and even some misinformation from Microsoft over the NT versus NetWare battle, and the impact these factors must have on the confidence of current and potential customers.
It's a long nightmare, with no foreseeable end.
The latest episode in the continuing troubles of Novell centres on rumours, first broached in PC Week US, that the company is about to be the subject of a takeover bid by IBM. Novell's shares skyrocketed when the news hit the stock exchange, despite repeated denials from both companies that there is nothing going on between them. But they would say that, wouldn't they?
"The company is not for sale," insisted Novell's CEO Eric Schmidt. "We have $1.1 billion (u0.7 billion)in cash. We have a huge installed base. So, we're not for sale. I cannot, unfortunately, comment on any specific rumours concerning mergers and acquisitions by IBM or anybody else, nor will I."
He reiterated his commitment to making the company a major player in the Internet space. The turning point for Novell will come next year, according to Schmidt. "A year from my starting - roughly the summer of 1998 - we will be a leader in Internet as well as intranet technology," he promised.
Schmidt's arrival at Novell as CEO earlier this year was meant to mark a turnaround for the company after a period of turmoil. Novell's previous boss, Bob Frankenberg, resigned from his post a year ago, amid criticism that he was not sufficiently dynamic and decisive. In the interim the reins were taken up by company president Joe Marengi. Marengi left shortly after the appointment of Schmidt, some said in pique that he was not chosen as the new chief.
Schmidt came from Sun, where he was Chief Technology Officer and a close colleague of flamboyant Sun boss Scott McNealy. McNealy's respect for Schmidt is well-known - he called his ex-employee "an awesome technologist" - and his departure from Sun was entirely amicable. Schmidt's move to Novell was supposed to herald a new Internet focus for the firm, Schmidt being one of the main pioneers of Java at Sun and one of the industry's strongest proponents of the language.
However, the newcomer has not yet had time to pull Novell out of its doldrums. The latest takeover rumours arose from the poor state of Novell's finances, which have been looking increasingly shaky of late. The company posted a loss of $122 million for the third fiscal quarter, ended 31 July 1997. This followed a second quarter loss of $14.6 million.
Sales appear to have suffered badly in recent quarters. Novell's revenues for the last quarter stood at $90 million, down by over a fourth from the $365 million figure reported for the third quarter last year. Revenues were $738 million for the first three quarters of this fiscal year, down from $991 million for the same period last year. The company cannot afford to haemorrhage income in this way.
Novell's losses stem partly from the large scale reorganisation the company has undergone in the last few months, initiated by Schmidt. The company shed 18% of its workforce in May, and has been steadily attempting to reduce the amount of inventory it holds in the channel. These combined effects were blamed for the recent tide of losses.
Kevin Mannion, sales director of Novell UK, leapt to his company's defence on release of the financial results, which were followed closely by publication of the IBM takeover reports. He argued that, far from being in need of a rescuer, the company is in excellent condition. "We haven't been in better health for 10 years," he claimed. "Novell is an enormously healthy company with a great user base, money in the bank and an impressive product map. That's why the stock price has gone up, as the markets have recognised this."
However, Mannion admitted the company could not guarantee it would reach profitability next quarter, or even in the following quarter.
Novell does have $1.1 billion in the bank, but does not seem to be doing much with it. At Brainshare Europe, Novell's developer and user conference, earlier this year, chief technology officer Glenn Ricart pledged to spend at least some of this money on acquisitions. Specifically he spoke of possible purchases in the video and audio market, though refraining from mentioning any company by name. However, Novell has done nothing publicly to further these plans. The longer the company's money remains in the bank, rather than being used for purchases, the greater credence is lent to rumours that the company will be taken over. A firm with large cash reserves is generally reckoned to be a more attractive prospect than one struggling to assimilate new acquisitions.
Although IBM has been targeted in US reports as the most likely suitor for Novell, it is equally possible that the firm will enter a deal with another buyer, according to Ashim Pal industry analyst at the Meta Group.
"I can see some sense in (an IBM buyout) but it would be massively distracting for IBM," he argued. "There would be problems in trying to integrate competing product lines like Novell's Groupware and Lotus Domino, and it would be very messy to manage. I would be surprised if IBM chose to do this, but it might happen."
Pal pointed to Sun and Oracle as two more likely buyers. "Sun could be in the frame because it doesn't have a very good groupware story or an installed base in this area," he said. Pal added that such a deal is made more likely by Schmidt's long connection with Sun and personal friendship with Scott McNealy.
Pal agreed that Novell is a "pretty attractive company". Its installed base is "still very substantial" in spite of Microsoft's aggressive marketing of NT, he said. Novell's products are less at fault than its marketing and "total inability" to communicate its solutions to the corporate market.
"Lots of people are mistakenly throwing out NetWare and putting in NT because they think it will magically get them somewhere Novell can't get them," Pal commented. "But if you look at Novell's technology, it's really pretty decent. What the company must do is to convince people that it is a safe place to spend money and to provide a product roadmap."
If Novell wants to shake off its continuing nightmare, put paid to the takeover rumours and retain its market dominance, it needs to get back the confidence of the corporate market. And if that can't be achieved quickly, a takeover is not just the most likely, but the best option.
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