NOVELL SHAREHOLDERS VOICE OUTRAGE AT BOARD OF DIRECTORS
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Okay. In addition to what and who and where you see this document has been sent, tonight, I have posted this to usenet (lots and lots of places), and sent it to my media contacts with the following notes:
TO: MEDIA
>>This document was sent to Novell, and CalPERS (California Pension Employee Retirement System) last Friday 4/18/97. To-date no response has been received. FYI, I am posting this on Silicon Investor, talk.techstocks.com (Novell - Subject), selected stock and business newsgroups on usenet, and on my web page:
monmouth.com
If you find this information to be newsworthy, please feel free to use any or all of it in it's entirety.
In fact, I encourage you to do so. Any questions? Just email me.
Regards,
Joe Antol
ATTACHMENT (just open it up like a present and read it).<<
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What they will DO with it I don't know. We will wait and see.
In addition, this information is on my web site:
monmouth.com
The following is what EVERYONE has received:
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The following document has been sent via email, fax, and hardcopy to the CEO, Novell, Inc. and CalPERS (California Pension Employee Retirement System), one of the large institutional holders of Novell, Inc. Common Stock. The document was sent on Friday, April 18, 1997 by very concerned shareholders in Novell, Inc. To-date, no response has been received from either organization.
It is with our hope that anyone who reads this document, and owns "any" shares of common stock in Novell, Inc., will vote to oust the Board of the Directors (with the exception of Dr. Eric E. Schmidt). Doing so, will enable this company to free itself from the stranglehold of legacy thought processes and decision-making, that turned a once-proud Software Powerhouse, into a more than "has-been" in the market, both perception and financial performance-wise.
NOVELL SHAREHOLDERS VOICE OUTRAGE AT BOARD OF DIRECTORS PERFORMANCE AND REQUEST IMMEDIATE REMOVAL
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The annual meeting for Novell, Inc. is scheduled for May 2nd, 1997. With the appointment of the new Chairman of the Board, and Chief Executive Officer, Dr. Eric E. Schmidt, sadly the remaining Board of Directors of this struggling corporation are requesting re-election.
Dr. Schmidt, as the primary board member was welcomed by the industry overall and the shareholders see this appointment as very positive for this company. However, the legacy board members, some of who have been on this board for more that 10 years, are passive, and have indeed made very, very bad decisions for the shareholders that they hold as a paramount duty, and that is, the "fiduciary" responsibility for the shareholders.
Having said this, the document follows for you to read, understand, and use to make YOUR decision as a stockholder in this company to:
VOTE THE BOARD OF DIRECTORS OUT!
NOW READ, AND UNDERSTAND WHAT THIS IS ABOUT
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Composition of the Board of Directors (BOD)
Although no one can take issue with the credentials of Novell's directors, collectively they have spent more than 80 years running, or helping to run major enterprises, they are also the Board of Directors responsible for the decisions that led to Novell's current predicament.
There were four current directors appointed during Ray Noorda's tenure and two directors appointed by Bob Frankenburg. Our main concern about the BOD is that it is indecisive and passive. Clearly the directors had concerns about Frankenburg's performance, yet they waited months before they suggested he resign. When he did resign the BOD had no succession plan in place and had no immediate replacement candidate. The BOD then set out a self-imposed deadline for selecting a new CEO which it did not meet. The effect of this internally was to leave the company without a direction for a period of seven months and externally to reinforce Novell's image in the market as indecisive. This is largely the same BOD that went along with Noorda in the disastrous purchase of UNIX and WORDPERFECT.
With the exception of Dr. Eric Schmidt, this BOD lacks direct experience in the swiftly shifting Networking/Internet market. It is an old era Board confronted with a new-era phenomenon---the Internet. he BOD requires an overhaul to bring in new members with fresh perspectives and direct experience in the Networking/Internet area. It is imperative that Schmidt have directors of greater depth and understanding and accomplishment in these key areas on the BOD as he makes decisions for Novell's future.
Some of the executives that meet that criteria are:
Jim Clark- Chairman Netscape
Eric Benhamou - Chairman, CEO 3COM
Eckhard Pfeiffer - CEO Compaq
Bill Fairfield - CEO Inacom
Del Yocum - CEO, Borland
Management of Wall St. Expectations
In the Fall of 1995 company executives announced that Novell would focus on its core network business and sell UNIX and WORDPERFECT. They said the company would be smaller but more profitable. Company executives emphasized publicly that Novell's core business was sound. Here is a summary of what company executives said and what the companies financial situation was proven to be by quarterly results:
In the Dec. 95 Conference Call, the company said Q1-96 revenues would be flat with Q4-95. They proved to be 9% less than projections (438M vs. 481M in Q4-95). Also company executives said that growth in the core businesses in FY-96 would be in the mid teens with earnings projected at around 1.10. Earnings for FY-96 were .27 (excluding gains from the sale of WORDPERFECT and UNIX), some 75% less than projections. In the May 96 Conference Call, the company projected revenue growth for Q3-96 through FY-97 in the mid teens, with higher levels of growth to follow. In fact Q3-96 revenues were 365M, about 10% less than projected, and revenue growth through Q1-97 is stagnant. In the Nov. 96 Conference Call the company projected sequential revenues and earnings growth for Q1-97, and .80 to .90 earnings for FY-97. Again actual Q1-97 revenues were 375M (7%less than projections) and earnings were .15 (17% less than projections). With this record only a miracle can accomplish the earnings projections of .80 to .90 for FY-97! The dismal results reported for Q1-97 were accompanied by more information that proved to be wrong. In a Goldman-Sachs investor conference on Feb. 13, 1997, just 13 days before Q1-97 results were announced, Mr. Marengi indicated operating margins for FY-97 will be between 20-23%. In fact the Q1-97 margins were less than 17%. In the Q1-97 announcement of financial results the company compared Q1-97 to Q1-96 WITHOUT STATING THE FACT that Q1-97 had five (5) more working days than Q1-96. To add insult to injury, the conference call replay didn't include discussions between company officials and analysts. In our opinion individual investors are entitled to the same information as analysts. Considering the projections and the actual results, it is no wonder that Novell is having a credibility gap with Wall Street and investors. This credibility gap is further depressing share price and injuring stockholder value. At a minimum in the future, company guidance to investors must be conservative and actual results must meet projections. However the projections of company executives versus the actual results create an additional danger---the perception in the market that Novell executives and the BOD do not understand Novell's core businesses, and have not been able to identify opportunities for revenue growth. It is obvious to us that this perception must be corrected through a change in composition of the BOD. Any perception in the investment community that the Novell BOD is insufficiently knowledgeable in the technology of Novell's core businesses is a danger to the future of the company. This situation requires decisive action through the placement of experienced and accomplished networking and Internet industry executives on Novell's BOD.
Handling of $1.1 Billion
According to the latest financial statement, Novell has about $1.1 billion in cash. Clearly the company can do three things: pay dividends, buy back stock, or make acquisitions and investments in developing new products. Novell officials indicated some cash will be spent on strategic investments and acquisitions. However with the financial debacles of Unix Systems Lab and WORDPERFECT Corp. weighing heavily on investors minds, there is a major concern Novell will go on an acquisition spending spree where most of the cash is spent with little or no positive impact on the bottom line. Limiting the size of each investment and the percentage of cash to be spent on all acquisitions/investments to 20-30% would alleviate investors fears. Only acquisitions/investments focusing on smaller firms in areas which improve existing product lines should be considered in the near term. We believe it is necessary for Novell to seek growth opportunities for the present within its core business. It must clearly outline a future direction for its existing core business to its customers and shareholders, and produce results on the bottom line in those areas before ever undertaking substantial acquisitions in the future. The two investments announced to date, Poet Software and Novonyx appear to be well planned and fall within these parameters. However the latter must be carefully managed and held accountable to the expected results, namely, a new web server from Netscape that makes IntranetWare more marketable.
Marketing
Despite the release of significant new products in the last two quarters, Novell's revenue and earnings have been flat. Clearly in a gamble to quickly boost sales, senior management placed all of its initial emphasis upon marketing products to the enterprise and did not explain to its customers where it was going with the rest of the product line. Called stealth marketing, this top down approach left an enormous hole at the bottom. By contrast Microsoft, the competition, has done a stellar job both articulating its own bottom-up marketing strategy and spreading fear, doubt, and uncertainty about how long Novell's products will be able to remain on top. Since purchasing decisions to buy networking products come from the management of the customer organization, the technical superiority of Novell networking products cannot make up for a customer's fear of adopting the wrong technology for the future. It is important that Novell have the products and the marketing strategy to counter the perception that the future of network computing lies with Windows NT. Novell marketing strategy must be revamped and the obvious holes in the product line must be filled by dynamic, well thought out, and aggressively marketed new products.
Although Novell has superior products (witness the recent security flaws in NT), the perception in the market place is that Novell's networking products are legacies. Several respectable research firms (e.g. IDC and Forrester) forecast that NT will outsell Netware in the foreseeable future. Unfortunately, this view is confirmed by Novell officials publicly. It is clear that Novell's vision of the future is too narrow, in essence Novell is 'extrapolating the past' instead of 'designing the future'. With this incoherent vision, the customers are confused and are hesitant in purchasing Novell products. Also, the perception that NT is the NOS of the future is forcing independent software vendors (ISVs) to develop less applications for Novell platforms. Clearly this is causing Novell market position to deteriorate further.
At the low end of the server market, where application servers predominate, and NT has experienced explosive growth, Novell did not develop and market a product to answer customer needs. Application servers are particularly important to small and mid-size organizations and to departments within major enterprises. Here we have actually found Novell senior management on the record recommending Windows NT as the solution for customers. Novell Marketing seems to have done the equivalent of opening up the Gates of Troy for a Microsoft horse! Every Novell server MUST deal with Windows 95 and NT as clients, and can even sell border services to someone that has bought an NT server. But Novell MUST avoid cultivating or supporting customer perceptions that NT can add any value to a Novell network while at the same time letting customers know that Novell has solutions for the problems they are having that Microsoft cannot solve, both in the present and in the future. Holing up in the enterprise leaves Windows NT to become the upgrade product of choice for the small server and Netware 3.X market---some 60% of Novell's current installed base. Is it surprising that sales have been dismal here?
As stockholders we find a defensive marketing strategy which condemns Novell to an ever shrinking share of the total networking market unacceptable. Novell must be perceived as being in the forefront of the adoption of intranet web server technologies addressed to the application server market.
New technologies are most readily adopted in corporate settings precisely at the scale and in the setting that Windows NT is aimed at. Novell senior management does not appear to understand either how personal computer technology has permeated the corporate environment or the power of the web server/browser to displace the current desktop operating system/application paradigm upon which Microsoft depends. How is it that we find Microsoft moving aggressively to prevent a web server threat to its desktop operating system/application market while Novell does not even have a viable product in this web server market? A JAVA virtual machine that will allow applications to run on the server is sorely needed. Obviously Microsoft understands something about future threats to its product line that Novell management doesn't, while Novell management pretends that NT doesn't want to take Novell's customers away. This is no strategy whatsoever. The inability of the senior management of the company to move rapidly and aggressively to develop a small server product based upon advanced technology raises questions as to the competence of the marketing organization. Kayak for example with severely limited NDS support did not come with any JAVA application solutions (word processing or database) for the small business customer, nor did it come with the tools needed by developers to create small business applications. Customers are begging for these solutions. Intranetware as a development platform appears to have been entirely ignored. We have known for years that the environment used for application development is most likely to become the run-time environment for the application when it is ready to be deployed. With Novell in a deteriorating market position, delivery of products on time appears to be of utmost importance. Three critical products appear to be late to market. NDS for NT and Moab will be delayed for six months and E-Commerce server is late about 18 months. Additionally Global Network Operation Center (GNOC) which was developed and announced in November hasn't been marketed yet. For some time Novell stockholders have been promised dynamic new leadership in marketing. We are still waiting. We would like to see clear statements of product line managers objectives for each new product and see corporate marketing compare those objectives to the perceptions of the customer base and provide direction. Instead no one appears to be heading up Novell's marketing efforts with a coordinated strategy emanating from the corporate center.
PUBLIC RELATIONS
It is a well known fact that there is a campaign to make NT the perceived center of every network. Like the Intel inside campaign to have the customer perceive that an Intel computer chip should be inside every computer box, Microsoft is heavily involved in a campaign to make NT synonymous with owning a network. This is a product of Microsoft Press Releases (PR) rather than a reflection of industry reality.
Despite having the majority share of the network market Novell does nothing to counter this campaign. While it is Novell that is at the center of most networks, it is Microsoft that is spreading fear, uncertainty, and doubt about Novell products unchallenged. Microsoft makes an entire industry of press releases about the irrelevance of Novell in "this increasingly NT centric world." Novell's response to every uncertainty Microsoft creates about a Novell product is a typical engineering response and defense from a technical standpoint. Microsoft also uses engineering to polish the image of its products but it goes farther and interjects HYPE, FUD, and out-and -out LIES about its product's supposed merits. Novell does not counter the FUD and HYPE in kind. This causes immense confusion for the Novell loyalists as well as potential customers. Novell has failed miserably in getting an effective, clear message out to the enterprise about its products. We believe this is another legacy of an out-of-touch BOD and a passively managed company.
Novell Public Relations has not capitalized on any of Microsoft's missteps. Novell should keep on top of all comments in the press about its products and respond to uncertainties and misinformation immediately. Although Novell uses Internet Web pages to tell its story, this is not good enough. Aggressive rebuttal PR against Microsoft must be out where everybody sees it. In other words Novell Public Relations has to take the message to the press. The world still relies on the print media to get its information intake. To counter being beaten up in the press, Novell must network with the media. It must work hard to cultivate relationships based on giving out information and being open and available to the media. The press needs good information to publish. They think they get it from Microsoft. When Novell doesn't counter, the press thinks Microsoft is right. That means Novell is very weak in "Spin & Damage Control", and cannot communicate effectively. Novell has to perfect its ability to react. To summarize, we place the blame for the Novell PR stance squarely on the shoulders of senior management of the company. We blame the BOD for permitting this weakness to continue through its disinterest and lack of knowledge in the company's core business. The Novell BOD has failed to demand an effective direction for Novell Public Relations. Novell PR gives every appearance to the stockholders of total corporate neglect. It is the weakest spot in the entire corporation. Novell does nothing in its "PR Model" to capitalize on the failures of its competition. It exhibits no aggressiveness whatsoever. Novell appears to be afraid, apologetic, and quite frankly embarrassed to compete. It reacts slowly to changes in the marketplace. What did it do about the INTERNET? It took half a year to forge an alliance to put Netscape's web server on IntranetWare, and it introduced IntranetWare well after Microsoft had both Netscape's web server and its own on top of its NT network operating system. Bill Gates turned on a dime. No meetings, flipcharts, overheads, presentations and endless decision making sessions. Microsoft just did it. This is the competition. For Novell to pretend that Microsoft doesn't want to take Novell's customers away is complete idiocy in the face of an onslaught of abuse. We believe that Novell has to develop a carnivorous culture when it comes to PR. We believe for this to happen the changes must come from the top, in both attitudes and personnel. For that reason we believe that the new CEO and Chairman of the Board of Directors must have the opportunity to remake the executive and board ranks of the corporation expeditiously.
Document end
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I'd like to thank Paul, and Salah, and BP for helping me with this effort.
Hopefully, it will make a difference. And if it doesn't, so be it.
We tried.
Regards,
Joe... |
