Hi Paul...Status of affairs at Novell
>>The current NOVL run is quite interesting. Among the small caps some are betting that NOVL can join the rally. Wait until they see the earnings.<<
Here are some of my thoughts:
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Q2 Estimates
Revenues = 250M
Note: Schmidt indicated that business is stable, I concluded that
revenues are about the same as Q1 (252M).
Total Expenses = 245M
Note: Q1 expenses were 247M and they said costs can't be reduced
further, I assumed they could reduce by about 2M.
Other Income = 14M (about the same as Q1)
Gross Income = 250 + 14 -245 = 19M
Income Taxes = 6M (about 32%)
Net Income = 19 - 6 = 13M
Shares = 353M
EPS = 13/353 = $.04
The key number is 'revenues'. If they are around 250M, then the
situation is 'stable'. If they are materially higher, then progress
is being made
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Future Growth
I don't see it. True, they have a window of opportunity between the
release of NW5 and NT5, but this is going to be temporary. NW isn't
the dominant NOS it used to be and never will be again, NT is
becoming the defacto standard regardless of its shortcomings. When
Novell releases NW5 the quarterly revenues will surge to about 270M
and then will return to the 'stable' level of around 250M. In fact,
that is what happened when they released Green River in Q4-96, except
that things went to pot from there. I don't understand it, Schmidt
was brought in to turn the company around, and the best he could do
is to stabilize revenues at 250M, about 100M less than the quarterly
revenues (factoring in channel stuffing) prior to his appointment.
This brings me to the main point I want to address.
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Schmidt Performance
I read all these great reviews about Schmidt performance from all
sources (people in the thread, a representative of Noorda, and trade
magazines articles especially the article by Jamie Lewis), and I
tell myself I should have missed something because although I like
the guy, I think his performance is mediocre, at best. Personally, I
don't think the situation would be much different if Frankenberg
stayed on. The myth that Schmidt materially improved Novell product
strategy isn't true, his strategy is basically the same as that of
Frankenberg's, if there are some differences, they aren't
significant. Schmidt hasn't solved the main problem novell had and
still has "MARKETING". Yes, I agree with Toy and others that their
products are superior and the new products are impressive
(Bordermanager, NDS on NT, Zen, ..etc.), but without strong marketing
they are not growing. The fact remains they are selling products in a
market which grows at about 30% annually (my estimate) and they can't
grow their revenues. It is clear to me that they are losing market
share at a hefty clip, or maybe someone has an explanation for
stagnant (or declining) revenues with all these fantastic new
products. Let's review briefly Schmidt Performance:
The Good:
1. Reduced manpower by 1000. Although they needed to reduce manpower
by 1500-2000, the remaining 500-1000 are being eliminated by
attrition (200 in Q1-98).
2. Reduced total expenses by about 60M/quarter.
3. Surprised the Street with robust revenues for Q4-97 of 269M.
The Bad:
1. Contrary to all the reports about getting products out on time,
none of the products was released on time in Schmidt era, e.g.: NW5
was originally scheduled for Summer 97, then Dec. 97, then June 98,
then Summer 98, then .....
2. Conceded the small business market to MSFT, and still Novell
doesn't have an answer to NT for the low end.
3. No change in the BOD even after the biggest shareholder (Noorda)
requested it.
4. Couldn't convince the big boys to adopt NDS (Sun, IBM, Oracle,
etc.), now he is talking about metadirectory.
5. Couldn't recruit a COO for over 6-9 months now.
6. His latest 2 interviews on CNBC were pathetic.
The Ugly:
1. Marketing strategy is not working. I guess his original 3-step
plan of Survive/Strive/Lead is progressing very slowly, I guess we
still are in stage 1, Survival.
2. He followed the tradition of the 2 previous Novell CEO's, lying to
investors and WS, although he said when he was appointed that this
was in the past and he can't do anything about the past. Here are the
lies:
a. Preannouncement of Q2-97, revenues will be 300M-335M, actual
revenues 273M.
b. Projections for Q3-97 were about 270M revenues and 25M-35M charge
for layoffs, actual numbers were 220M (normalized) and 55M,
respectively.
c. Projection for Q1-98 indicated flat or slightly lower revenues
relative to Q4-97 (269M), actual revenues were 253M, this is
misleading.
When the CEO and other executives lie to WS and investors, it is one
of two things, both bad, either they want to mislead or they don't
know what they are talking about, take your pick. For Q2-98, his main
theme was that business is stable, I took that to mean revenues will
stay flat, let's see if he surprises us either way.
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Is Novell Turning Around?
The simple answer is 'no', I personally don't understand ML upgrade
except if he is doing this in anticipation of a surge in the stock
price due to the imminent release of NW5. Fundamentals haven't
changed, their status follows the stagnation scenario of post # 14205
IMO. A turnaround will be in effect when we see one or more of the
following:
1. Insiders start buying the stock in the open market
2. Consistent revenue growth
3. The marketing type guys (Lake & Carlos) who sometimes post in this
thread start telling us that Novell marketing is OK.
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In closing, I'm sure some people will jump in and say I'm bearish
and/or I'm shorting the stock, the fact of the matter is I don't have
a position in the stock, but my knowledge about the company maybe
useful to some people. Joe hasn't posted for a long time, I miss his
posts.
Regards to all
Salah
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