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Novell beats 2Q estimates
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May 23, 2000: 4:42 p.m. ET
Software maker squeaks past revised estimates after warning of a shortfall
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NEW YORK (CNNfn) - Internet services software provider Novell Inc. beat analysts' revised second-quarter earnings predictions Tuesday, but as expected, the company's results fell far short of initial expectations.
The company also announced it would split into four separate units, Net Management, Net Directory, Net Content and Novell Customer Services, as part of its efforts to shift from a product to a market-driven organization.
Excluding one-time items for the quarter ended April 30, the Provo, Utah-based company posted net income of $31 million, or 2 cents a share, compared with net income of $39 million, or 11 cents a share in the year-earlier period.
Analysts surveyed by earnings tracker First Call/Thomson Financial had expected second-quarter earnings of 1 cent a share.
Including a one-time $35 million royalty from Caldera Systems as part of a lawsuit settlement, the company earned 9 cents a share.
Revenue for the quarter totaled $302 million, compared with $316 million in the year-earlier quarter.
Analysts had initially forecast earnings of 16 cents a share for Novell with sales of $360 million. But earlier this month the company warned that, without the royalty payment from Caldera, it would just about break even in the second quarter.
In addition, the company said a decline in traditional packaged software sales and a drop in market demand for packaged software contributed to the shortfall. Competition from Microsoft's (MSFT: Research, Estimates) Windows 2000 and the Linux operating system also hurt Novell sales, the company said.
Excluding the Caldera royalty, Novell's base operations generated about $270 million in sales for the quarter, $90 million below expectations, Novell Chief Financial Officer Dennis Raney said on May 2.
Novell's United States sales in the second-quarter dropped 16 percent from the year-earlier period to $142 million. Sales in Europe, the Middle East and Africa fell 20 percent to $84 million. Sales in the Asia-Pacific region fell 7 percent to $24 million and sales in the Americas outside the U.S. grew 4 percent to $17 million.
The company also announced Tuesday that Nicholas Tiliacos, who earlier this month replaced sales head Ron Heinz, has resigned for personal reasons. The company appointed Rich Nortz to replace Tiliacos, the former president of the Mosaix division of Lucent Corp., as Novell's senior vice president of worldwide sales.
Novell, which has experienced a significant decline in sales to re-sellers of its software and has been plagued by managerial and organizational problems, said Tuesday that it planned to split the company into four business groups, each with its own strategic focus.
Net Management will focus on providing solutions for existing and new enterprise customers, and growing business around Novell's established products.
Net Directory will focus on providing the directory "dialtone" for the Internet by delivering customer-driven software.
The Net Content Group will focus on content services including the company's Internet Caching System, a method of storing large amounts of data.
And Novell Customer Services will provide consulting, education and technical support services to Novell's customers.
"Our customers are at different stages in deploying their Internet strategies, and we recognize the need to focus our efforts around making the network for them, regardless of where they are in that implementation," Eric Schmidt, Novell's chairman and chief executive officer said. "We're making these changes to align our business so that we can win in a dynamic and demanding marketplace. Ultimately these actions will strengthen Novell's ability to deliver Net services software to customers including small to large enterprises, service providers and dot.coms."
The introduction of Microsoft's Windows 2000 operating system and growing market interest in the Linux operating system created "uncertainty and delayed sales," Novell said earlier this month.
The move to divide Novell into four units is in the right direction, but whether it's a long-term fix for the company's problems remains to be seen, Joel Achramowicz, an analyst with Preferred Capital Markets said.
"I respect the fact that they're trying to make some changes," Achramowicz said. "...Obviously management is trying to make some changes. I will give them the benefit of the doubt in that regard, but there's still a lot of work to be done."
Novell reported results ahead of the closing bell Tuesday. Shares of Novell (NOVL: Research, Estimates) closed up 13/16 to 9-3/4 at the close of trade Tuesday. 
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Novell
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