Hi Scott...About Moab, Operating Margins, and Novell Prospects
About Delay of MOAB
>>>>>2. Delay of Moab from 12/97 to mid 98, this will give MSFT the
chance to freeze the market with NT5.0 release around the corner.
If you have been following the press, then you obviously know that both companies have shipped Beta versions of the products. But you should also already know that the ship date for NT v5.0 (which you refer to as "around the corner") is now off into 1999 sometime ... or at least it has become very indeterminate.
NT v4.0 is still very incomplete as a desktop OS, and is missing many key features for laptop users. Microsoft has a lot on it's plate and has created a product that has almost one order of magnitude more code to maintain than other operating systems.
Active Directory, although competing on mindshare, is extremely incomplete and more limitations are going to become public in the coming months. I think that this is possibly one of the contributors to the delay of NT v5.0 ...<<<<<
I have to differ strongly with you here. Whether NT5.0 will be released in 99 or 2010, it doesn't have much impact on MSFT. However, the delay of MOAB has a significant negative impact on Novell. Remember that Schmidt initially promised a turnaround by 1/4/98 and kept pushing this date in the future to match the release of MOAB. If this is the product that the future of the company depends on, one would think that the 12/97 release date must have been met. I hate to say it, but let me assure you MSFT will do well with NT4.0, regardless of its deficiencies, vs Green River, MOAB, or whatever Novell has, they have proven it.
About Operating Margins
>>>>>10. They lost money on operations in Q4, 5M-6M
I will have to read more to better understand this ... I'm not sure the details of this and what the implications are. When you say that we lost money on operations, does this mean that operations had an additional expense of 5M-6M? I didn't know that operations was supposed to profit ... again, my ignorance of exactly what this means. (Any explanation would be welcomed ...)<<<<<
I thought Novell main business is development and marketing networking
software and related services for profit. Yes Scott, operations are supposed to profit, this is capitalism, but then again maybe Novell has changed its charter to become a non-profit organization where making profits is not an issue. Let's look at some numbers from Q4 results:
Revenues: 269M
Operating Expenses
Cost of sales: 63M
Sales & marketing; 102M
R&D: 73M
G&A: 37M
Total Operating Expenses: 275M
Operating Income: 269-275 = -6M (loss)
Operating Margin: -6/269 = -2%
This means that Novell loses $.02 on every $1.0 of sales. A reasonably
managed software company should be able to accomplish 20%-30% operating margin. Clearly, we are far from it at the present time. Just for the sake of clarification, here are the corresponding MSFT numbers for Q1-98 (ended 9/30/97):
Revenues: 3130M
Operating Expenses
Cost of sales: 253M
Sales & marketing; 788M
R&D: 567M
G&A: 95M
Total Operating Expenses: 1703M
Operating Income: 3130-1703 = 1427M (profit)
Operating Margin: -1427/3130 = 46%
This means that MSFT makes $.46 on every $1.0 of sales. Operating margins of 46% is something unheard of in any industry. This explains why MSFT stock sells for ~42 times 98 earnings and ~13 times 98 revenues. Add to this that their revenues have been growing consistently at ~30% yearly, and it becomes clear that Novell has a long way to become prominent again.
About Novell Prospects
>>>>>P.S. I have to say that after the announcement I couldn't help but to grin for almost two days ... this is getting fun! ;-)<<<<<
If I were you, I would temper my grinning. That is exactly what I felt after the results of Q4-96 were announced. Green River sales were great, sequential revenues growth of 5%, and projections by the company for continued growth. I thought then that we are out of the woods and the stock is heading for the low 20's, and before you know it, they stumbled into a swamp and they haven't gotten out of it till now, they are barely hanging on with a life jacket. Let's wait and see.
Regards
Salah |
