Novell (NOVL) dirt cheap, good buy? Message Board

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Technology Stocks : Novell (NOVL) dirt cheap, good buy?

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To: M Goodson who wrote (16988)	9/6/1997 1:11:00 PM
From: E_K_S	of 42771

Hi M Goodson - You raise some very good points regarding the free flow cash flow and depreciation accounting adjustments. In fact, this is something I watch very closely too. I have found out that for software companies, this type of analysis only works as long as (1) sales revenues remain constant or grow, (2) new products are constantly developed and sold into the channel.....remember with software the product life cycle is VERY short, perhaps 18 months, and (3) the company diversifies their revenue streams across many customers (no one customer should account for more than 5% of the revenue. The top 500 large enterprise customer accounts probably make up as much as 30%-40% of Novell's revenues....this is my guess perhaps Elmo or somebody else can provide the exact number) and across product lines (no one product line should account for more than 30% of the overall revenue stream)...Novell IMO has problems in both these areas. According to my simple analysis, the free flow cash flow for this last quarter (Q3 1997) report went negative or very close to negative. There were many factors that impacted the cash flows, in particular the adjustment for product channel 'stuffing' (the third time in the last 18 months UGH!). This also says something about our past management and current BOD. However, you do make some very good observations which the average investor fails to recongnize. I guess my concern is how the revenue for the future (say Q2 through Q4 1998) will average out based on the three points I stated above. Sales revenue must first stabilize and then the revenue product mix must expand (new products...MOAB, BorderManager, NDS etc..and also service revenue too). CEO Schmidt is trying to manage this while MicroSoft is beating down our customers doors to sell their NT products. IMO CEO Schmidt will have a difficult time just to stabilize the revenue rate at these levels (ie $600 million-$800 million next year) well below the $1 Billion many analyst estimate. EKS

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