Novell warning stirs fears about viability

A warning from Novell last week that revenue and profits for its latest quarter will fall short of expectations has hammered the company's shares and revived concerns about its viability. Analysts voiced doubts that the company's new Net Services business will take off quickly enough to compensate for flagging sales of Novell's core NetWare product.

Novell said it expects to announce later this month revenue of more than $US300 million ($503.65 million) for the second quarter ended April 30, compared with $316 million for the previous quarter and $316 million for the same period a year ago. Earnings will be around 8 cents a share. Financial analysts First Call/Thomson Financial previously reported a consensus estimate of 16 cents.

"The company has not been able to generate new business as fast as the old business is going away," said Peter Ausnit, an analyst at Prudential Securities.

Novell blamed this quarter's disappointing results on a decline in channel sales and large account site-licence sales. Executives said the introduction of Windows 2000 and "growing market interest" in Linux, as well as market moves toward the application service provider model, were creating uncertainty and delaying sales.

Novell expects growth to come out of its Net Services strategy, outlined by president and CEO Eric Schmidt earlier this year, to deliver Internet and intranet services based on its Novell Directory Services. Novell executives said sales and marketing efforts will be realigned around Net Services, an undertaking that would take at least the remainder of fiscal 2000 to complete. Analysts are generally upbeat about the Net Services vision.

But Joel Achramowicz, an analyst at Preferred Capital Markets, expressed doubts about whether Schmidt can manage Novell's transition to Net Services.

"I think Eric enjoys talking about the technology, but I wonder whether he can actually make the deals" with major customers in the Internet space, Achramowicz said.

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