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Doubts Again Cloud Novell's Future

Critics will be ready to hammer another nail into Novell's coffin this week, when the company reports that revenue for its second quarter will fall well short of expectations. Novell is already moving to address at least some of the problems responsible for its predicament, including turning its attention to the service- provider market it has long neglected. Also in the company's favor is the fact that some loyal users are beginning to rally in support of its far-reaching vision of a directory-based network infrastructure.

Chip DiComo, Network manager of Hellmann Worldwide Logistics Inc., says he's eager to see Novell's Directory-Enabled Net Infrastructure Model (Denim) come to fruition in his own operation. Denim encompasses Novell Directory Services (NDS) eDirectory software, Digitalme identification technology, and One Net strategy for developing software that treats public and private networks as a single network.

But not everyone has caught up with Novell's grand idea, analysts say. "Companies are still struggling with the mundane stuff, like trying to get their back-end applications integrated," says Steve Foote, CEO of consulting firm Enswers.com. "Many companies won't be looking at deploying directories the way Novell envisions for another nine months to a year. So instead of selling only the One Net vision, Novell needs to show its existing NetWare clients how they can use the directory to bring real business value."

Novell had better do so soon, says Chuck Phillips, a Morgan Stanley Dean Witter financial analyst. "They have two or three quarters to turn themselves around, or they'll continue to be marginalized as companies continue to bet on Microsoft." But pressures brought by Windows 2000 and Active Directory can't solely account for Novell's disclosure earlier this month that revenue for the quarter ended April 30 will total only $300 million--$16 million less than the year-ago quarter and $60 million short of its own sales projections. While part of the problem may be that Novell is selling its directory services concepts ahead of the curve, analysts point out that Linux is also putting the squeeze on NetWare.

Another problem: Channel inventories for the company dropped 40% for the quarter, to less than $30 million, the result of weak global sales. And Novell's channel partners have become impatient with the vendor's slowness at providing technologies that can support their efforts to become service providers. Dave Shirk, senior VP of product management for Novell, says the company will address that issue this week when it debuts new products for service providers. "It's fair to say that until now, we haven't made enough noise in the application-service-provider space," He says, "and we haven't invested enough, soon enough, in these new areas."-

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