'It beats the hell out of losing money'

Is it a dying company's last gasp or the beginning of a rallying cry?

That's the question facing Novell Inc. after it posted surprisingly good earnings and revenues in its fourth fiscal quarter. Despite trimming hundreds of employees and revamping its strategy, Novell managed to post a profit of $7 million, or 2 cents per share, on sales of about $270 million.

First Call consensus expected the network software developer to return a profit of 1 cent per share in the quarter.

"It beats the hell out of losing money," said Stephen Dube, an analyst at Wasserstein Parella Securities. "They came in a little higher than expected, which shows they're starting to get back on track. Bringing the operating expenses down was one of their chief objectives."

Even though sales were down 30 percent from the year-ago quarter, the fourth quarter figures were a damn sight better than the third-quarter debacle, when the company mustered only $90 million in sales and swallowed a $122-million loss.

But as the world's fourth-largest software company with more than 55 million users, Novell doesn't exactly have Microsoft Corp. shaking in it boots. In the past six months, scores of financial analysts have discontinued their coverage of Novell, writing it off as a lost cause.

"There was a definite sense that Novell had lost its edge and become complacent," said Chris Hoffman, a software analyst at International Data Corp. "Obviously Microsoft and the arrival of the Windows NT platform posed a major material threat that they are still trying to address. I'd say they're becoming more aware of the need to compete more aggressively in the Internet and intranet markets."

Much of that strategic moxie came in March when Eric Schmidt came aboard as chairman and chief executive after 14 years at Sun Microsystems Inc. His commitment to the Java programming language and Internet and intranet business applications has helped Novell to its fiscal feet.

"I think Eric brought a sense of need to be forward-thinking and embrace the technologies that will carry Novell into the future," Hoffman said. "Now they have the ability to respond with a coordinated offering of products and services. I wouldn't write them off just yet."

But of the roughly two dozen brokerage firms that covered Novell through the end of 1994, only a handful remain. Most were convinced Microsoft would render Novell insignificant in the digital age.

"Frankly, I stopped covering Novell a couple years ago because I thought Microsoft was going to wipe them out in that space," said one anonymous broker. "The story appeared to be over."

Not so fast.

Schmidt said fiscal 1998 would be a year of "further investment" and feels the company has taken the steps necessary to return to profitability and get its stock price moving again.

"I'm pleased to report that demand for our products came back from our entire distribution channel -- value-added resellers, multi-product licensing programs, and original equipment manufacturers," he said in a release. "Fourth-quarter performance shows that the changes we've made in Novell's business are taking hold. We have also set a faster pace for product introductions and market initiatives."

Even Novell's stock has made a bit of a resurgence since collapsing in the wake of the third-quarter disaster, climbing from its 52-week low of $6.59 per share in June to Tuesday's close of $9.22.

"There are worse stories out there," Dube said. "I wouldn't go to the mat for this stock, but we'll at least see where it goes for the next quarter or two."