MESSAGE
| DATE | 2005-11-10 |
| FROM | From: "Inker, Evan"
|
| SUBJECT | Subject: [NYLXS - HANGOUT] Novell Tripping Over its Linux Strategy
|
Novell Tripping Over its Linux Strategy
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By Hiawatha Bray
The Boston Globe
11/02/05 5:00 AM PT
Even Novell's sternest critics like Jack Messman's basic plan; they just
think he's done a lousy job of carrying it out. "Our conviction is firm in
the future promise of the company," said a letter to top Novell managers
from Blum Capital Partners. "The question is whether the current management
and board will execute."
Two years after the rebirth of onetime computer networking titan Novell
(Nasdaq: NOVL) , the Waltham, Mass., company is still having trouble
learning to walk.
At a time when organizations of every kind depend on masses of networked
computers, Novell should be prospering. Its software for letting computers
share the same files and printers had made Novell the world leader in
networking during the early 1990s. And now the company has embraced the free
Linux operating system at a time when demand for Linux is soaring.
Paying for Missteps
Instead, Novell may be poised to lay off hundreds of employees because of
missteps that have cost it the loyalty of once-faithful customers like Jim
Klein, director of information services and technology at the Saugus Union
School District in Santa Clarita, Calif. After eight years of using Novell
software, Klein expected to move to Novell Linux software during an upgrade
last year. Instead, he settled on Linux software from rival Red Hat (Nasdaq:
RHAT) .
"We really wanted to go with Novell in the beginning. We really did," said
Klein. "But they just didn't have it together. I think that's the industry
perception as a whole."
Novell's revenue has barely budged over the past two years, and the
company's bottom line has bounced from red to black to red again. Last week,
Business Week magazine and the ZDNet Internet news service reported that
Novell could soon lay off hundreds of its 5,800 employees after the close of
its third quarter, which was yesterday.
In September, Blum Capital Partners, which owns 5 percent of Novell's stock,
called for Novell to sell its two jet aircraft, slash research and
development spending, and fire 400 engineers. The stock, which traded from
US$35 to $40 in 1993 and again in 2000, has been languishing below $10 for
the past year.
And last month, Credit Suisse First Boston analyst Jason Maynard boosted his
rating on Novell -- on condition the board oust chief executive Jack Messman
and his team. "If they don't make bold moves in the next 12 months, they'll
move into irrelevance," Maynard said.
Revitalizing the Company
But members of Messman's team say that their two-year plan to revitalize the
company is on the verge of bearing fruit.
"The whole platform is progressing very rapidly," said Novell vice president
and Linux general manager David Patrick. "I think we're making good progress
in our core markets."
Those core markets are a sizable but dwindling number of businesses and
government agencies that rely on NetWare -- an operating system developed by
Novell in the 1980s, but now withering away. Messman is now banking on
Linux, one of the most popular platforms for heavy-duty data processing.
Even as he moved Novell's headquarters from Utah to Massachusetts because
most of its top management was based here, Messman decreed that NetWare
should be rewritten to run on top of Linux. In November 2003, Novell paid
$210 million for SUSE AG, a German firm that was the second-biggest Linux
distributor, after Red Hat Inc. of Raleigh, N.C. At one stroke, Novell
absorbed a well-regarded version of Linux, and a small army of Linux
specialists to help transform the company.
Even Novell's sternest critics like Messman's basic plan; they just think
he's done a lousy job of carrying it out. "Our conviction is firm in the
future promise of the company," said a letter to top Novell managers from
Blum Capital Partners. "The question is whether the current management and
board will execute."
Novell certainly didn't meet Jim Klein's expectations. He wanted to run a
network based entirely on Linux and other "open source" software -- programs
that are available for free in their raw form. Open-source code doesn't
belong to any one company, giving its users a great deal of flexibility in
how it's used. But Novell offered its Open Enterprise Server, which runs on
top of Linux, but is owned by Novell. Klein said Open Enterprise Server cost
too much, and didn't work consistently with other open-source programs.
Quality Holds Up
He also found it nearly impossible to find books or Internet documentation
on Novell's Linux offerings. In contrast, there are dozens of books and vast
amounts of online aid for Red Hat Linux. So Klein replaced his Novell
NetWare system with Red Hat Linux instead of Novell's.
In 2002, SuSE accounted for 25 percent of all Linux revenue, according to
Credit Suisse First Boston; last year, under Novell's ownership, SuSE
garnered just 19.9 percent. During the same period, total Linux revenue
jumped to $198 million from $83 million, most of which went to Red Hat.
Novell's revenue from new software licenses fell in 2004, and has dropped
for the first three quarters of 2005 as well. Still, Novell has about $1.6
billion in cash and short-term securities. Messman, under pressure from Blum
Capital, has agreed to spend $200 million buying back stock.
Novell users aren't complaining about the quality of the company's software.
Josh Turiel, a network management consultant and former president of the
Boston Novell Users Group, said his customers love the reliability of Novell
products.
Novell even attracts some defectors from Microsoft (Nasdaq: MSFT) . Brian
Scott, the information technology manager for LA Gym Equipment Inc., a chain
of Southern California fitness stores, got sick of constant problems on a
network of servers running Microsoft's Windows NT operating system.
"I didn't want to keep patching the things," Scott said. "It was causing me
a headache. I couldn't focus on my other tasks." Rather than upgrade to
Windows XP, Scott ripped out the NT servers this year and installed Novell
NetWare running on SUSE Linux.
"We saved about $400,000," Scott said, and repair calls from the company's
15 stores have dwindled to almost nothing.
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