Hi Joe...(2) Here are my comments and suggestions:
However, I have several concerns and I do believe we should keep the
pressure on to obtain the desired results. Your approach though is
radical and is not supported by Calpers, WAIS, or Amex. My approach
would be more to the center. Here is what I suggest:
Forget about Calpers, WAIS, and Amex. Let us organize ourselves in an
independent entity. I will call it for now Novell Small Investors
Coalition (NSIC), you and others may want to select a sexier name. Of
course, our main purpose is to enhance the shareholders value. Should
we collect enough members and shares (say 2M-3M), Novell management
will be more than willing to talk to us, they talk to Calpers with
1.7M shares. After we get organized and elect our reps, our first
action is to arrange for a meeting with Novell management to express
our concerns, and we act accordingly. I just don't see it appropriate
to call for the oust of the BOD and Marengi without hearing what they
have to say. They clearly convinced Calpers that >>independent
directors of the company were doing "all we could expect them to
do,"<<. Also, we may want to coordinate our effort with other
organizations such as Calpers, WAIS, ...etc. This way, instead of
sending several e-mail messages without getting an answer, our reps
will be responded to without delays. Further, this reduces the work
load of their investor relations dept. which I am sure is overwhelmed
with concerned investors questions. I would be more than happy to
throw my support behind this (or similar) proposal.
Here are my concerns:
1. Leadership: They promised that the new CEO will be appointed in 4-6
months from late August 96. Now, they are saying it may be up to
4/15/97. The deadline is 02/28/97, period. This is not acceptable, and
it doesn't bode well with customers, the Street, and investors.
2. Sales and Marketing: They have been pouring a lot of money and
mannpower behind this department but they aren't on track yet. The
following table shows that they are spending about the same amount of
money now as they used to when the revenues were about 40% higher.
This confirms what you and I have been saying all along that their
sales and marketing dept. stinks and requires massive overhaul.
Q4-96 Q3-96 Q1-96 Q4-95 Q3-95
Net sales 384 365 438 481 538
Sales and mktg. 143 125 124 142 149
Total expenses 316 296 337 403 404
Mktg/Sales% 37 34 28 30 28
Mktng/Expenses% 45 42 37 35 37
Operating Margins% 18 19 23 16 25
Notes:
a. Total expenses include cost of goods, R&D, sales & marketing, and G
& A.
b. Operating Margins = (Sales-Expenses)/Sales
c. Q2-96 is not included because of the inventory adjustment.
I expect their response to be that they increased their advertisement
budget by 20M quarterly, but this 37% of net sales is not acceptable
(MSFT with their massive marketing machine spend about 27% of net
sales on sales and marketing). I suspect they have more people in this
department than they need. According to their business plan of May 96,
their sales & marketing expense should be between 27% to 30% of net
sales. Clearly, this is reducing the operating margins below the
stated numbers of their May 96 business plan (21% to 29%).
Consequently, this has a material effect on EPS.
3. Inconsistent Public Messages:
a. Recently, the VP of sales in Asia-Pacific region said we are going
after MSFT and on the same day the guy in charge of the Japanese
office said they are cooperating with MSFT. What is it?. You and Paul
didn't get an answer from the company.
b. In an interview with Network World in September, Marengi said that
they are going about their business as a stand-alone company but the
BOD has a fiduciary responsibility to consider possible
merger/acquisition offers. Now, the company theme is "we are not for
sale". I don't understand this, should we get a fair offer (say
$22-$25), why shouldn't we long suffering shareholders be rewarded?.
4. PR: Too many negative article about Novell in the press (example:
the article you posted yesterday "A Call To Action: Novell Needs TO
Recapture Competitive Fire", Communication Week). Although, they
responded last week to a negative article in CRN they have to be on
their toes to counter the FUD published about them continually. They
have to gain the confidence of customers, analysts, and investors, and
these negative articles don't help.
5. Promising products disappear in a black hole: Last November they
announced the GNOC. We haven't heard anything about this thing since.
What happened?.
Here is the address for the GNOC:
novell.com
One final remark, I called Investor Relations today and they said that
Q1 results will be announced on 02/26/97 after the market closes.
Hopefully, I didn't bore you to sleep with my long post.
Regards
Salah |
