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Technology Stocks : Novell (NOVL) dirt cheap, good buy?
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To: Elmo Gregory who wrote (7717)2/10/1997 11:42:00 AM
From: E_K_S   of 42771
 
Thanks Elmo, Michael and Salah: I assume that any impact on sales due to the strong dollar will (1) may be hedged by Novell through currency futures, (2) risk may be passed to the channel distributors, (3) prices may be adjusted to keep the product cost constant to its foreign customers, (4) Some foreign sales may be invoiced in other currencies (ie. through Dublin Ireland) subsidiary.

To summarize, I would think that a week dollar would benefit more than a strong dollar but it appears that other corporate strategies implemented would reduce any overall negative impact.

The CEO of Gillete mentioned that their strategy to diversify their foreing currency risk was to 'manaufacture' products (ie. purchase raw materials) in each country so that it equals the overall demand for each item sold to a specific country. In Novell's case, their raw material is mostly labor and technology talent. I suspect then that the India venture allows Novell to spread part of their (labor/technical) developmental costs in terms of rupee rather than dollars. Quite an interesting hedge technique.

As the global corporation grows, I suspect this will become an area for management to review going forward. I see that Cowen has reduced IBM's earnings estimates for 1997 and 1998 due to the dollar strength and future impact to their net U.S. dollar (equivalent) earnings.

EKS
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