With slow Q3, Novell warns no relief until mid-2002

Despite continued sluggish sales, network software producer Novell on Thursday reported third-quarter earnings that slightly beat analysts' expectations. However, the company warned that the weakened IT market will show no signs of recovery until mid-2002.

Novell reported net earnings of US$13 million, or $0.04 per share, excluding nonrecurring items, for the quarter ending July 31, the company said in a statement.

The consensus from three analysts polled by First Call/Thomson Financial had been for Novell to break even at $0.00 per share.

However, Jack Messman, president and chief executive officer (CEO) said that while e-business solutions promised high ROI (return on investment), it was apparent that it would take until the second half of 2002 before improving conditions would open up the market.

Due to extraordinary one-time restructuring costs of $39 million taken in the quarter, Novell reported a loss in its net income of $19 million, equaling a loss of $0.06 per share, Novell said. In the third quarter of 2000, Novell reported a net profit of $8.5 million, or $0.03 per share.

Novell reported net sales of $247 million, a drop of 8 percent compared to its net sales of $270 million in the same quarter of last year, Novell said. The drop in sales came despite revenue of $80 million from Cambridge Technology Partners Inc., the IT consulting company acquired by Novell in March.

Sales from its large network site-license business -- which accounted for 68 percent of its total revenue -- were $167 million in the third quarter, a decline of 3 percent from the previous quarter, Novell said. Sales of its packaged software licenses for smaller networks also saw a decline from the previous quarter, down 9 percent to $33 million, Novell said.

Third-quarter revenue from the U.S. was $140 million; from Canada and the Americas $16 million; from Europe, Middle East and Africa $75 million; and from Asia Pacific $16 million, Novell said.

Novell expects it will break even in the fourth quarter with forecasted revenue of between $305 million and $315 million, though it warned that further restructuring and integration costs could bring those numbers down.

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