Novell Cost-Cutting Paid Off In Third Quarter - InformationWeek

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Novell Cost-Cutting Paid Off In Third Quarter

Novell, once the struggling giant of the networkingindustry, posted a strong third quarter yesterday, with revenue of $327 million--a more than 20% increase over the $272 million posted in the third quarter of last year. Net income for the quarter nearly doubled, up to $49 million compared with $27 million in the third quarter 1998. In the past nine months, net income actually increased 95%, from $60 million in the first three quarters of 1998 to $117 million in the first three quarters of this year.

The net income gains are in a large part due to cost-cutting initiatives introduced to Novell since Eric Schmidt became CEO, according to industry watchers, who say that layoffs, new pricing structures, and refocused product initiatives have restored the company to a leadership position. "Novell has clearly returned to a position of prominence in the industry," says Brian Goodstadt, an analyst at Standard & Poor's Rating Service in New York. "Their credibility is back, and that is helping them gain momentum."

Sales of NetWare made up more than half of Novell's revenue, with NetWare server sales accounting for $175 million, network applications such as ZENworks bringing in $5 million, and IT services bringing in $49 million.

Despite the reversal of Novell's financial fortunes in recent quarters, Microsoft continues to loom over an otherwise bright future. Novell will face stiff competition in the NOS and directory space late this year when Microsoft ships Windows 2000 and Active Directory, competing head to head with Novell's NetWare 5 network operating system and Novell Directory Services. "It will be a huge challenge," Goodstadt says, "but I think they are entrenching themselves deep enough now that they will be able to weather the Microsoft storm when it comes."

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