Novell Earnings Below Expectation

On May 2, Novell preannounced the results of its second financial quarter 2000, which ended April 30. Earnings are lower than expected at $300 million, or $0.08 per share. Analysts had expected Novell to earn $0.17 per share, creating a major disappointment for investors and stockholders. Novell's stock share went from 17 9/16 on the day of the announcement to 11 1/8 in 2 days. The company attributes the lower revenues to poor performance in channel sales and large-site licensing, which it blamed on Microsoft and the Linux movement. "The company experienced weak sales across its global channel," says the official statement, "as the introduction of Windows 2000 and growing market interest in the Linux operating system created uncertainty and delayed sales."Novell also claims that its problems were partially due to the increased interest in application service providers (ASPs); the company admits that it's currently weak in the ASP market. According to the official statement, "Many channel partners are rapidly transitioning to an ASP role. In this fast-emerging market, Novell has yet to generate broad awareness and has only begun to make ASP-related investments. Slowed large-account sales reflected a lack of demand generation by Novell among new customers for new Internet services products." Dennis Raney, chief financial officer, said that Novell was taking action to remedy these problems. These actions, Raney predicted, will take the rest of financial year 2000 to deploy.Several private sources have said that Novell was making lots of money at the end of 1999, largely from year 2000-related NetWare 5 sales. These sales created a false sense of success, which the market is ripping away. Novell claims that the mistakes are due to problems in management and organization and says that the company is taking steps to fix them. See Novell's official statement on its Web site.