Hope Waldy was not watching the action..<ggg>
I still see that the analysts have not figured out the Appliance Strategy..WHY PAUL????????
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Novell: Who Needs NetWare?
Tell us what you think in NOVL's Board
individualinvestor.com
Director of Online Research: Dave Sterman (4/4/00)
Three years ago, Dr. Eric Schmidt left a top management position at Sun Microsystems
(NASDAQ:SUNW - Quotes, News, Boards) for a chance to lead a turnaround at former
high flier Novell Inc. (NASDAQ:NOVL - Quotes, News, Boards). While preserving
Novell?s strength in networking software, Schmidt quickly set about to develop new
products that extended the company into new arenas.
But all the while, Novell made sure to communicate to customers?and Wall Street?that
networking would remain at the core of the company?s product platforms. To that end,
Schmidt knew that he had to convince the world that Novell?s NetWare would remain a
viable alternative to Microsoft?s (NASDAQ:MSFT - Quotes, News, Boards) Windows
operating systems, which handled many similar functions.
But try as he may, Schmidt couldn?t back up his rhetoric with numbers. In 1999, Novell?s
NetWare fell to third place behind Windows NT (38% of the market) and Linux (25%).
NetWare accounted for just 19% of the market?well down from a 60+% share posted
just a few years ago. And the outlook for 2000 calls for continued market share erosion.
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At an annual users conference last week, Schmidt threw in the towel. For the first time in
the company?s history, Novell assiduously avoided mentioning NetWare, and instead
focused on new Internet-oriented products.
To be sure, Schmidt has spent a great deal of time discussing these new products in
recent quarters. But he also spent a lot of energy trying to browbeat potential customers
into steering clear of Windows NT. Over the last six months, Schmidt has been taking
potshots at Microsoft at every chance. Just two months ago, Novell launched a Web site
to dispel the 'blatant untruths' about NetWare that Microsoft published on its Direct
Access Web site.
Now that the company has taken NetWare away from center stage, the company?s other
software products will receive a lot more attention. The challenge for Novell: convert hype
into sales. The company?s broad line-up of new offerings sounds quite appealing. But as
we saw in the January quarter, they have yet to have a serious impact on sales. Indeed,
analysts greatly lowered their expectations for the current quarter as well. But Preferred
Capital?s Joel Achramowitz notes that business was tracking well in the first two months
of the quarter.
Building sales won?t be easy. Novell has historically relied on Value Added Resellers
(VARs) to peddle its wares to tens of thousands of companies. But Novell?s new roster of
software offerings are ideally sold as a bundle. That means the company has to go right
after IT executives at Fortune 500 companies. Once Novell can penetrate a few key
accounts, sales momentum could quickly build.
Novell?s software offerings hold a great deal of promise. The key products:
Novell?s instant messaging technology for businesses, instantme, will be available
immediately. Instantme will allow partners, suppliers and customers to communicate in
real-time, and will be capable of connecting with American Online?s (NYSE: AOL -
Quotes, News, Boards) Buddy List Network. In the second quarter, Novell will
incorporate encryption and digital certificate technology for secure instant messaging.
Novell will combine Internet traffic management software provider Radware?s (NASDAQ:
RDWR - Quotes, News, Boards) Cache Server Director (CSD) with Novell's ICS, in a
future release, hoping to provide optimized cache redirection and bandwidth
management, by redirecting Web traffic to local cache servers like those offered by
Novell.
An open beta version of DirXML is available, which will allow companies to manage user
profiles stored in software applications, network operating systems, databases and
network devices, across divergent platforms and networks, without modifying existing
software.
Internet Messaging System and GroupWise will be ported to Sun?s Solaris Unix
platform and Linux and offered on a hosted basis to Internet service providers (ISPs) and
application service providers (ASPs).
The various pieces of software all revolve around Novell?s Network Directory Software
(NDS), which acts as a sort of phone book for Web site administrators. At its BrainShare
2000 confab last week, the company tried to articulate a new software architecture for the
Web?which ideally uses Novell?s various products. The company has even coined a
catchy umbrella term that covers all of its products?DENIM, which stands for Directory
Enabled Net Infrastructure Model.
Novell certainly has a core group of dedicated users. At the BrainShare conference,
8,000 attendees showed up, which may be a record for the annual event.
?The new marketing guys stole the show,? says Preferred?s Achramowitz. The analyst
remains convinced that Novell is still grossly undervalued, and sees the shares rising to
$60. He figures Novell is the only ?heterogeneous, cross-platform and multi-protocol
networking company around. Translation: Novell?s software is ideally suited to tie together
disparate computer platforms within a company.
We share the analyst?s enthusiasm. We?ve picked Novell in our Magic 25 portfolio for two
years in a row under the assumption the emerging Internet-based suite of products would
prove quite appealing. Though we are disappointed at the relatively slow ramp up of the
new products, we remained convinced that Novell has a good shot at capturing strong
investor sentiment later in the year.
The stock has the potential to appreciate sharply in coming months?if the new products
gain traction. Sun Microsystems, for example, trades for 12 times trailing sales.
According to Market Guide, developers of integrated computer systems trade, on
average, for 64 times trailing sales. Novell trades for just seven times trailing sales.
Bottom Line:
Investors have taken a wait-and-see approach regarding Novell. The stock will
likely stay range-bound until the new software products gain traction. But when
that happens, the shares could appreciate sharply. |
