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Novell says it's not for sale
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August 27, 1997: 2:52 p.m. ET
CEO Schmidt says networking giant is focused on innovation, new products
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NEW YORK (CNNfn) - Once the undisputed king of networking software, Novell has been under siege for some time. It was sideswiped by the sudden popularity of the Internet, and it was shaped into a bigger company by its founder Ray Noorda, who vowed to battle Microsoft on every front.
Novell's new chief executive, former Sun Microsystems chief technologist Eric Schmidt, is spearheading the company's turnaround attempt.
He appeared Wednesday on CNNfn's "Digital Jam" with Steve Young to chart the company's future. Here is a partial transcript of their conversation:
YOUNG: You've laid off 18 percent of your employees, taken a big charge and held back new product from the channel so what's out there can be sold. When will Novell start charging ahead? And in what direction?
SCHMIDT: Well, we hope in the next quarter. When I showed up in the company, from my perspective, there were some management focus problems. There were some inventory problems, and too many people were in the wrong places. So, in our first quarter, our objective was to clean all that out. And we've done that. And I'm pleased that we've gotten that far. This quarter, we're going forward with new products, new marketing, new key messages to drive platforms and services.
YOUNG: I ticked off some reasons that the company was in trouble. Would you want to add to those?
SCHMIDT: Well, franchises like Novell are wonderful things, and over time that franchise was very, very profitable, with lots of happy customers. A series of management decisions and acquisitions went awry. So, to some degree in my first quarter, I had to get back to basics, get back to network services and networking, which was the original franchise of the company.
There are internally a number of problems that I think we've addressed. Everybody has objectives now. They have their plans. We have integrated product maps. I've talked to most of our customers, certainly our top customers. It seems to be working.
YOUNG: Novell's signature product, Netware, was marginalized by the Internet. What are you going to do about that?
SCHMIDT: Well, marginalized is perhaps too strong a statement. We still ship almost a million copies of Netware this year. We expect that number to grow over time. The problem with the Internet, of course, was that Novell was late to those technologies. So, I came to the company in order to advance Novell's leadership in those technologies, take all the good stuff that Novell makes and put it on top of an (Internet) framework.
YOUNG: When you were at Sun, you were often fighting Microsoft tooth and nail. It strikes me as ironic that, in a sense, you've got the same challenge that Gates had. You've got to turn the company around on a dime. He talks about embracing and extending. What will be the watchwords at Novell about the Internet?
SCHMIDT: Bill, of course, did a great job at Microsoft doing the same thing. So, we understand the formula. You go in, you tell everybody this is the right answer. You go take the technologies and put them on top of interoperable solutions. You build your internal networks that way, and you integrate your customers' networks together.
Because of this, because of the way networks work, it become self-generating. It becomes a snowball. And we intend to do that over the next year. What I've said a number of times is that a year from my starting-- roughly the summer of `98-- we will be a leader in Internet as well as intranet technology.
YOUNG: Internet protocols being used now are not just for the Internet, but for intranets. Why do corporations need Novell?
SCHMIDT: Well, in the first place, do they need intranets? And the answer is absolutely. Corporations one after another are taking disparate computer systems and, to lower the total cost of ownership reasons, they're integrating their networks together. With our transition to Internet protocols, we can be their primary network supplier across the Internet as well. Business-to-business is going to be business-to-business over the Internet, and we'll be a major player in that.
YOUNG: Business certainly wasn't business as usual on the Nasdaq Tuesday. Your stock traded at 10 times its normal volume on a persistent rumor that just won't seem to go away that IBM is poised to take over the company. Comment?
SCHMIDT: Well, the company is not for sale. We have $1.1 billion in cash. We have a huge installed base. So, we're not for sale. I cannot, unfortunately, comment on any specific rumors concerning mergers and acquisitions of IBM or anybody else, nor will we.
YOUNG: You don't pay much attention to the stock price?
SCHMIDT: I'm a new CEO, and my friends who are CEOs have told me that you run your business for long-term customer value. We have many things that we have to clean up. We have to get products out the door. We have to get our new messages out. And then we'll start worrying about those kinds of issues.
Right now I'm very, very focused on the next generation of products, getting our customers really focused around our new value proposition, and I think shareholder value will come from that, and it will be good.
YOUNG: One analyst we've talked with yesterday said while they've been laying off employees, Novell has also been doing some very high level hiring -- something that the company would not do if it was trying to position itself for a takeover.
SCHMIDT: Again, unfortunately, I can't comment on the takeover rumors. I can tell you they were busy building what I view as a killer team. We've got some very serious talent that I inherited in the company who recently brought in a very senior marketing executive out of IBM, coincidentally. We're also recruiting for a chief operating officer that will get value out of this great franchise that I've been fortunate enough to inherit.
YOUNG: What's it like going from chief technologist to CEO?
SCHMIDT: I had had some operating experience in jobs prior to being chief technology officer at Sun. The difference, of course, is the level of intensity of scrutiny and pressure and so forth as a CEO. I have worked hard to be a good freshman CEO and I've gone to class by talking to my friends who are CEOs, and I'm doing my best so far.
YOUNG: What do you say to yourself when you have to lay off 18 percent?
SCHMIDT: It was certainly difficult. The more important point was 46 percent of our vice presidents either left or were fired, 29 percent of our directors and 18 percent of our employees. So, we really did clean house. In my view, that was the correct answer. We had too many people doing the wrong things. We're a much, much more focused organization.
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