Novell Substantially Lowers Q2 Expectations

SAN FRANCISCO (05/02/2000) - Networking software vendor Novell Inc. today issued a profit warning for its second-quarter financial results, saying both revenue and earnings will be substantially lower than the company had previously forecast. The main factor dragging down Novell's results is a major fall in channel sales, the vendor said.

For the second quarter of fiscal 2000 which closed April 30, 2000, Novell expects to announce total revenue slightly over US$300 million and earnings per share of around 8 cents, the vendor said in a statement issued today. The earnings per share figure is half that predicted by ten financial analysts polled by First Call/Thomson Financial who estimated the company's earnings per share would be 16 cents for the second quarter.

Novell is due to report its full second-quarter results May 23 after the markets close for the day.

The company recorded earnings per share of 11 cents on revenue of $316 million in the second quarter of fiscal 1999.

The fiscal 2000 second-quarter results will include a royalty payment of $35 million made to Novell by Caldera Inc., the bulk of which relates to a January out-of-court antitrust settlement reached between Caldera and Microsoft Corp.

[See "UPDATE: Microsoft Settles Caldera Antitrust Suit," Jan. 10.]Caldera, which acquired DR-DOS from Novell, had filed an antitrust lawsuit against Microsoft in 1996 alleging that the software giant had abused its dominant position in the operating system market to stifle the chances of DR-DOS being able to compete against Microsoft's rival operating system, MS-DOS. Microsoft agreed to pay Caldera a one-time charge of 3 cents per share which analysts speculated was equivalent to between $250 million and $275 million.

As well as a fall in channel sales during the second quarter of fiscal 2000, Novell also reported a drop-off in its large account site license business. The company blamed the decline in its businesses on management and organizational issue within its sales operations.

Novell is midway through efforts to both address the Internet services market and grow its presence in the enterprise network management market. It will take the company the rest of this fiscal year to ensure that customers are aware of its Net services software strategy, Novell officials said in today's statement.

Sales globally were weak due to both the arrival of Microsoft's new operating system Windows 2000 and the rise of open-source OS Linux which resulted in delayed sales, Novell said. The company is also suffering due to its slow reaction to the growth of the ASP (application service provider) business in which Novell is only now getting its feet wet.

The company also announced today the appointment of a new senior vice president of worldwide sales. Nicholas Tiliacos is joining Novell from Lucent Technologies Inc., where he headed up newly acquired CRM (customer relationship management) business Mosaix. He replaces Ron Heinz who has left Novell.

Novell's shares ended today's trading at $17.56 down 7.26 percent from the previous day's close.

Novell, in Provo, Utah, can be reached at +1-800-222-6000 or via the Internet at http://www.novell.com/.

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