How the new CEO hopes to revive Novell
Published: Sept. 22, 1997
Mercury News Staff Report
Eric Schmidt took over as chairman and chief executive of troubled Novell Inc. in March, leaving behind the chief technology officer post at Mountain View-based Sun Microsystems Inc. Novell, headquartered in Utah but with nearly 1,000 employees in Silicon Valley, reported a $122 million loss in its most recent quarter on revenues that were a fourth of the year-earlier figure.
Although Novell's Netware product -- used to link desktop computers - holds more than 60 percent of the market for network operating system software, its position has been shrinking as Microsoft Corp.'s Windows NT makes inroads in corporations.
In an interview recently with Mercury News editors and reporters, Schmidt described his strategy for reversing Novell's fortunes by focusing on ways to let people's personal computer setups follow them from computer to computer. This is a highly edited and animated version.
Q: What has Novell been, and how does it need to change to get back into the game?
A: Historically, the company was the leading network services provider in the PC industry. It is amazing, when I wander around, really amazing in fact, that everyone seems to be a customer. Our new strategy, of course, is to find customers who seek increased functionality in file and print services.
Q: But don't some people see you as more of a legacy system provider, an old technology, if you will? Novell is perceived in most quarters as consistently failing to embrace the open Internet networking standards, called TCP/IP.
A: The Internet is just another network. Really, I am amazed that people don't understand that. Amazed. I assumed that our technical customers would complain, as they usually do, about the technology. In fact, they all report that our technology is much better than our competitors', in particular, Windows NT. The fact that they have been considering the move for a long time, historically, does not concern us. They can give you lots of specifics involving scalability, robustness, and other buzz words. And there is no question that Novell was late to the TCP/IP market, but it is just a fade and will pass. And a couple of years ago, the company announced its intent to move there but has not moved very quickly. So that is not a strategy. That's an excuse, and of course I'm busy fixing that by holding both senior and junior-level strategy meetings. From the standpoint of playing at the right pool party, you have to be a leader in TCP/IPX, which is really the new wave. Most people don't understand that this standard, which Novell is pushing, in that it will capture and freeze the market.
Q: You've been with the company for nearly six months now. What changes have you made?
A: There were basically three problems that I appear to have inherited. One was that there was too much inventory. There's a relatively straightforward thing you do in that situation: You come in, you clean everything out in the first quarter. Not only did we not ship anything into the channel in the first quarter, but we actually took quite a bit back. So you saw the results. By eliminating inventory, we were able to save money on printing costs, shipping costs and manufacturing costs, which helps the bottom line and directly impacts stockholder satisfaction.
The second problem was we still had too much personnel inventory in the company. In early June, we laid off about 1,000 people, which hardly affected sales, engineering and maintenance. I wonder what those people were doing in the first place. I expect immediate costs savings.
And then the third problem was really a focus problem. The company had had many, many different initiatives . . . all of which were interesting. Amazing, really amazing. All of the training, all of the advice that I've gotten over the last months indicates that you really, really need to focus as hard as you can on a few key things, which for us is TCP/IPX. So everybody now has objectives, everybody has focus. I have all my people write their focus and paste it on their cubicles.
Q: You took a big hit against earnings, and some have suggested that was a judgment call, that there were other ways to handle that through accounting techniques. Can you tell us the pros and cons of that decision?
A: The company has had a history of aggression, of pushing the envelope. I mean it was legal, but when there is discretion I think that on balance, it wasn't as conservative as it should have been. So, when we did the initial account reviews, we discovered things like, there would be deals that were in place but there was a side letter that I didn't know about. Or there was a verbal understanding that wasn't written. And in every case we defaulted. That has the benefit that when revenue gets strong by Q4 1998 and so forth, then all those deferrals begin to add incremental growth. So, I guess for me it's not an option it's amazement.
Q: What are the most difficult technical problems facing developers today?
A: Directory and security for TCP/IPX has been tough. Everything else is pretty well understood. The directory problem has been lagging. There's been a lot of proposals; it's clearly the strategic wedge today. We'll hold strategic meetings until we get a good feel for where we need to be.
Q: What do you mean by directory?
A: The easiest way to understand how the directory works is to imagine a place that's not anywhere, physically, but it's a place where you can hold your credentials and state information of one kind or another. It's amazing, really. Many people have talked about this, but nobody's really executing it. Having a directory allows you to have a single point of log in, single point of management. As an example, we have a product, which nobody seems to know about except for the people in the MIS (management information systems) groups, and they love it, wanna marry it (just kidding). You put your Windows software on a server and then you wander around to machines, and whatever machine you're on, you log in and the software shows up. Just like magic. In fact, we were gonna call it General Magic, but it turns out that the name is already used. Customers love this, because all of a sudden we're not talking about a directory, we're talking about a directory-enabled application. Amazing. Many applications have their own directories. Most customers complain about their inability to integrate. Most of the analysts indicate that we have a couple years' head start in this space, and that appears to be the real crown jewel of all of the good things in Novell.
Q: The directory is hard to get people to notice. It's sort of a transparent thing. It's something that only people in the bowels of MIS seem to be really interested in.
A: They're our customers. We like our customers in the bowels of MIS. Our customers are like mules and we are the 2x4s to show them the technology.
Q: Is there anything you can do to make the directory more noticeable, so that people know that they're using Novell products?
A: The problem that the company has had is we're a plumber, and who remembers the name of their plumber? We happen to be very good plumbers, and the company has a branding and messaging problem. We are thinking about starting a campaign of Novell Inside. It was proposed recently, and jointly, by the marketing and PR departments.
Q: So, were you asked by Apple Computer Inc. to be CEO?
A: I'm not going to comment about any of that, but I have a proven track record of turning troubled companies around.
Q: But if they did ask, what would you say?
A: (Laughter) I am very, very happy in my new job at Novell. I made a commitment, and this is amazing technology. I learn new things every day, and am looking for an amazing turnaround in about 18-20 months.
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