Hi Joe...Let's make peace
The exchange between you and Jerry is getting hot although I do believe both of you are correct. Jerry is a VAR and a strong supporter of Novell products and he believes that they could become great again, you on the other hand don't see any positive change in their financial performance to warrant such optimism. Both views are valid at the present time and the resolution of this argument will not be clear before we see the financial results of the next 3-4 quarters. Here are some of my thoughts:
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Business Plan
A big part of the problem is that the company doesn't give any guidance on their future expectations. In early May 97, Schmidt promised a business plan by the time of Q2 announcement and we don't have a business plan as of today. Here is what they told investors:
1. Novell will become a recognized internet/intranet player by 4/1/98, this was changed to the Summer of 98 in the latest conf. call, and then again changed to the end of 98 in response to being in the worst performing 20 stocks.
The statement of being an internet/intranet player is vague at best. Does anyone know what it means?. It could mean that they will be losing less money by then, or will be profitable without growth, or will be growing. Personally, I don't know. If someone does, enlighten me.
2. In mid May 97, Schmidt said a company of Novell complexity would require 2-3 years to turnaround. How does this jive with 1 above?. I tried to get a written response from their IR and I got some vague response which I posted here.
3. BorderManager could be a billion dollar product. It is not clear when this $1.0 billion will be realized, in one year, 2 years, 10 years, .....what. Historically, their projections never pan out. Take for example Novell Connect Service, when they announced it in the Fall of 95, they projected revenues of 200M-300M in 2-3 years. Now, it is about 2 years since then and the revenues from this product are insignificant, you don't even hear about it in their PR.
Don told us that one sales rep. told him that they sold 2M of BorderManager in the first two days. Considering that the demand is high when a product is initially released and then it tapers off, it seems that BorderManager sales will be 100M-150M/year for the first year. When are we going to reach $1.0 Billion in sales?.
4. Schmidt stated after Q3 results were announced that when revenues reach 250M/quarter, we will return to profitability. The problem is he never said when this is going to happen.
5. Schmidt stated that he wouldn't have taken the job if he knew the bad shape they are in. This is fine, but he has the job now, does he have a business plan to implement?.
There are several other lame statements about 'clean quarters' and fantastic products they are keeping secretive such that they don't tip the competition, ..etc. And of course, we have Mr. Young laying the blame on Noorda, forget it, this is history, the bad acquisitions (Unix and WP) of Noorda have been divested about two years ago, and what has the management and the BOD done in these two years?, they managed to drive the company into the ground, revenues declined from about 400M (excluding divested businesses) to about 220M in the
latest quarter.
In any case, the statements by the company officials over the last 6 months are very confusing to analysts and investors and don't provide any understanding of their business plan. Regardless of what shape they are in, they must have a business plan, the above crap is not going to cut it. Companies in the same situation (or worse) as Novell have business plans. Take for example the case of Unisys, they have a clear business plan at unisys.com
Such a plan for Novell might restore investors confidence and help the stock price. The problem is that the business plan write up falls within the responsibilities of the CFO and maybe he needs another 6 months to draft it.
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Schmidt Performance
In the least, I'm very disappointed. I thought he will do much more in the marketing and sales area. Unfortunately, these areas seem to be his weakness. Computerworld came up with a 'Report Card' for Schmidt and gave him a 'D' in marketing. This is really sad. Here is the article:
Computerworld
Schmidt wins user kudos
Laura DiDio
(News, 09/22/97)
cwlive.cw.com:8080/home/print9497.nsf/All/SL38schmid15E26
From the hardcopy page 130 (couldn't find this table in the web):
Eric Schmidt's Report Card
Effort: A-
Deportment: B
Delivering product on time*: B
*with the exception of NDS for NT
Java initiative: B+
Tech support: C-
Licensing: C-
Developer relations: C
Marketing: D
Overall grade: B
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Small/Medium size Business
In the latest conf. call Schmidt admitted that MSFT is dominant in the low end market and indicated that they haven't formulated a strategy for this market yet. In the meantime, it seems that MSFT is increasing their lead. This is very disappointing. Here is a recent article about Novell dismal performance in this segment (you wonder whether they read and understood the white paper).
Microsoft solidifies NOS lead -- Also pressures Netscape in the race for Internet browser market share
By Keith Burbank
Computer Reseller News, September 15, 1997
techweb.com
From the article:
Microsoft Corp. is strengthening its position in the small- and
midsize-company network operating system market as rival Novell Inc. loses ground, the August CRN/Ruzinsky Research software reseller poll found.
Microsoft's market share jumped sharply in June, and since then the vendor has held onto this higher share level. The software giant's share of the NOS market was 60 percent in August, 61 percent in July and 63 percent in June.
This is up from an average of 47 percent in the first quarter and 43 percent in the fourth quarter of 1996. Prior to June, Microsoft's share of the NOS market had never been higher than 50 percent.
Novell's market share has averaged 28 percent over the past three months. This is down from an average of 38 percent in the first quarter.
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Insiders Activities
I agree with Dwight that the lack of buying by insiders at these levels is discouraging. Company executives should buy shares if they want to restore confidence in the company's prospects. The new CEO of Unisys bought shares worth $1.0 million of his own money on the first day of his appointment and announced it to the media, I wish Schmidt and other executives do the same.
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Finally, your post about Java is outstanding and enlightening and is a keeper for sure.
Regards
Salah |
