Novell shares slide following 2Q results

Novell shares tumbled 1 9/16, or 16 percent, to 8 3/16 Wednesday, one day after it limped past analysts' reduced estimates in its second quarter.

In the quarter, Novell posted a profit of $31m (£21.01m), or 9 cents a share, on sales of $302m, including a one-time $35m royalty from Caldera.

Exluding the one-time gain, Novel posted a profit of 2 cents a share, a penny better than the First Call consensus estimate.

Novell shares have lost more than 70 percent of their value in the past two months.

In the hopes of righting the ship, Novell said it will restructure the company into four business units, to deliver software service to small and large customers.

Earlier this quarter, Novell braced investors for Tuesday's disappointing news, blaming a combination of Windows 2000, Linux-based products and management and organizational issues for lackluster sales.

On Tuesday, Novell officials were basically singing the same song, saying second-quarter sales were sluggish due to "a decline in traditional packaged software sales in the worldwide reseller channel."

While it said Windows 2000 and Linux offerings consumed significant reseller attention during the quarter, it claimed it was experiencing "no real market loss" to Windows 2000.

"Novell's packaged software revenue decline is an unintended consequence of our focus on new products in new markets," said CEO Eric Schmidt in a prepared release. "Clearly we need to be better in addressing the multiple, and often diverse markets, products and channels that we require for growth. We are making changes in management, market focus and channel execution."

Part of those changes, according to the release, include putting more of an emphasis on training, demand generation and field support for its indirect channels. It also will continue to target new contributions to growth from its entry into the Internet infrastructure market and through its support for Windows 2000, NT, Solaris and Linux solutions.

Several factors hurt Novell's business recently, executives said during a Tuesday afternoon conference call with analysts. "It's no single trend, it's a combination of them," Schmidt told analysts.

Among other things, Schmidt said, Novell rolled out more products in the past fiscal year than it has historically, even as increased direct sales created conflicts with resellers and added confusion. The company also focused its advertising and marketing on branding, rather than creating demand, Schmidt said during the conference call.

By virtually every measure, this quarter was a nightmare for Novell. The $302m in sales marks a 4 percent decline from the year-ago quarter when it posted a profit of $38.7m, or 11 cents a share, on sales of $316m.

Its net services applications scratched out a 9 percent year-over-year gain to $79m while its service, education and solutions consulting sales were up 26 percent to $56m.

However, packaged software sales such as its NetWare server software plunged 32 percent from the year-ago quarter to $115m.

In retrospect, Novell's first-quarter earnings should have provided investors some idea of what was to come. In the quarter, Novell met analysts' earnings estimates of 13 cents a share, but fell well short of most revenue targets.

First Call consensus expects Novell to earn 28 cents a share in the fiscal year. The stock soared as high as 44 9/16 in February and was trading above $30 in mid-March before falling to a low of 8 3/8 earlier this month.

Half of the 10 analysts following the stock rate it either a "buy" or "strong buy" while the other half call it a "hold." Novell is based in Provo, Utah.

Sergio G. Non contributed to this report

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