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Technology Stocks : Novell (NOVL) dirt cheap, good buy?
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To: Don Troppmann who wrote (31713)5/18/2000 11:22:00 PM
From: Spartex   of 42771
 
Morgan Stanley Dean Whitter Research May 11,2000
part 1

Valuation:

We rate Novell Neutral. The company is focused on a new breed of directory-enabled net services. However, Novell pre-announced earnings for the fiscal second quarter that were well below street estimates and the company's internal plan. Manangement attributed the weakness to weak channel sales, poor sales organization, and competitive factors. In our view, NOVL is suitable for investors with a tolerance for the price volatility associated with technology stocks.

Key Investment positives:

Novell's cross platform strategy: Part of the battle of the directories with Microsoft will be whether users want to centralize directory information in one place'Microsoft' or distribute throughout the network. Novell distributes information in federated directories databases throughout the network. This approach eliminates a single point of failure and enhances security, whereas the central-directory approach has the advantage of simplicity of design but creates a single point of failure and a potentail bottleneck.

Consulting engagement establish value creating opportunities: Every sales rep is responsible for generating requirements analyses from their existing customers. These are high-level consulting engagements that take about three weeks and generate fees of $30-40k. After a successful requirements analysis,Novell expects to drive follow-on sales of directory-enabled applications. This represents the long term driver of Novell's revenues and it is important to demonstrate the technology in large accounts. In the meantime, the company needs to crank out bread and butter products and win the battle of the channel.

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