Novell cuts 16 percent of work force

The cuts will eliminate about 900 positions, leaving the firm with a work force of around 4,600
Written by Margaret Kane, Contributor

Novell will lay off 16 percent of its workers in a cost-cutting measure that it says will save $25 million per quarter.

Rumours of layoffs had circled for a while, after the company pledged in August to take "additional action" in the fourth quarter "to ensure our expenses are in line with revenue."

Novell earned $8.6m (£5.92m), or 3 cents a share, on sales of $270m in the third quarter, just besting analysts' estimates. But sales slipped in the US, Europe and Asia.

The cuts will eliminate about 900 positions, leaving the firm with a work force of around 4,600. Novell said it would take a $40m to $50m pre-tax charge in the fourth quarter to account for the restructuring.

"We're reducing expenses overall, and we are also freeing up dollars to spend on key sales, marketing and development initiatives that are part of our strategic focus," CEO Dr. Eric Schmidt said in a release.

Novell will also write off some assets, which it says will contribute to the cost-savings. The savings should begin to take effect in the first quarter of fiscal 2001, officials said.

The rumors had sent Novell's stock down in recent days. It closed down 1.13 at 11.06 Tuesday, off a 52-week high of 44 9/16. The rumours had pegged the layoffs at higher than the ones announced, with some reports predicting as much as 30 percent of the company would be axed.

"It's only enough if they come up with new product. You can't cut your way to prosperity," said Charles Phillips, analyst at Morgan Stanley Dean Witter. "I don't see any prospects near term unless they have something up their sleeve they aren't telling us about."

Novell said the restructuring will allow it to focus on the Net services market. Total quarterly savings from the restructuring is actually around $45m, but some of that will be offset by increased spending on Net services related initiatives.

Novell had already ordered a restructuring following disappointing second quarter results. It has struggled with its attempt to move from a maker of network software to a provider of network services.

After the expense adjustments, the company will continue to spend a higher percentage of total revenue on product development, and sales and marketing, than do many established software companies, officials said. General and administrative expenses are planned to match industry norms.

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