Magic 25
Jun 24, 1999
All Systems Still Go At Novell
Since early March, shares of Novell have bounced around in the $20-25 range. But the behind-the scenes action at the company's Utah headquarters gives the impression that Novell will increasingly offer cutting-edge, net-based software that helps boost the performance of the Internet as well as Intranets.
The product development team at Novell is actively engaged in the production of what as affectionately become known as the "10 ZENS." This essentially means that Novell is attempting to introduce 10 additions to the existing ZENworks line. As a refresher, ZENworks is a product that allows managers to have better control over the data and usage over their respective networks.
And Novell's increased focus on the caching segment is starting to bear fruit. Caching is a process used to speed up a web server's capacity. Preferred Capital Markets analyst, Joel Achramowicz has commented that he thinks Novell could generate as much as $70 million from caching products over the next year. It has been estimated that the caching market could be worth $2 billion by 2002. If this is the case, we can expect that Novell should have a foothold with which to grow with the market.
To further juice its efforts in this arena, Novell has just signed two Internet Caching partners, Pionex Technologies and Quantex Microsystems. These two partners will offer cache appliances based on Novell's Internet Caching System by the third quarter of 1999. While we cannot quantify what this particular deal means to the company, we can say that it is a step in the right direction and an indication that Novell's caching technology is indeed a viable one.
To advance its efforts in the network management arena, Novell has just acquired privately held Ukiah Software. The deal, which was for less than $50 million, should help flesh out the company's technology in the area of network bandwidth management. Novell still has more than $900 million in cash. So more deals may be in the offing.
CIBC World Markets recently picked up coverage on Novell with a Strong Buy recommendation. Bear Stearns started coverage with an Attractive rating. Clearly this is a positive for investors to have these two powerful firms behind the stock, but more importantly, we think that it is a solid statement that the company's technology is for real and that the investment opportunity is an attractive one. Moreover we would point out that even with the volatility in the NASDAQ market, Novell has actually been fairly stable. Yet another good signal that the shares are merely awaiting the next catalyst before moving to a higher level.
Wall Street is forecasting that the company will earn $0.14 per share on average (according to Zack's estimates) for the third quarter ending July 1999. We think that the company will likely come in maybe a penny above the consensus estimates.
Going out on a limb, look for Eric Schmidt to stay on board and not take the helm at Hewlett Packard (NYSE:HWP - news) as some have speculated. Mr. Schmidt has alluded to the fact that he still has some unfinished business at Novell. Although it might make sense and he could likely write his own ticket at HP, we don't think that this is his exit strategy. Stay tuned as we think the last six months of the year will be a busy time for both new deals and product introductions.
Analyst: Glenn S. Curtis
Updated on 6/24/99 with NOVL trading at $24.88 Recommended 11/16/98 at $14.38
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