A Novell Idea for Networking: Lean on Your Partners
(From TheStreet.com)
By Medora Lee
Staff Reporter
3/22/99 1:00 PM ET
SAN FRANCISCO -- Novell (NOVL:Nasdaq) has
found that luck favors those who deliver on time.
Over the past year, the Provo, Utah, software
company has found a way to live in a Microsoft
(MSFT:Nasdaq) world without getting squashed. In
the early 1990s, Novell went head to head with the
Redmond, Wash., software giant in the battle to
control network operating systems and software
programs for personal computers. Novell was nearly
buried in the Windows NT onslaught and was on
the brink of becoming a has-been.
Today, under the tutelage of CEO Eric Schmidt, the
former chief technology officer at Sun
Microsystems (SUNW:Nasdaq), the company has
a new and, apparently, winning strategy that has
received accolades from Wall Street. Schmidt, who
joined the company in 1997, applied several
measures to pull the company together: He closed
down unprofitable product lines, cut back staff and
focused the company on the business of network
directories -- especially on Novell Directory Service,
or NDS.
Last September, Novell delivered -- on time -- its
Netware 5 product, which allows corporations to
run corporate intranets. By contrast, Microsoft's
Windows 2000, formerly known as Windows NT
5.0, has been delayed by two years and has yet to
ship. Windows 2000 includes an active directory
that will compete with Novell's primary directory
product.
Microsoft's stumbles have allowed Novell a rare
chance to shine. And Schmidt has taken full
advantage of the opportunity. In late February,
Novell reported its sixth consecutive quarter of solid
results. The company's profits doubled, with sales
jumping 13% year over year and the
directory-related business now making up to 80% of
revenue. Novell's stock has also steadily risen more
than 150% since October to hit its highest level
since February 1994. On Friday, the stock closed
at 26 3/16, 1/8 higher for the day and significantly
up from 18 3/16 when the year began.
Because Novell's directory products work across
platforms, companies like to use them when they
are considering directory services for the Internet,
on which there is currently no standard platform,
says a Boston-based buy-side analyst. More
customers need services that can operate across
different platforms, a demand that Microsoft has,
until lately, ignored. While Microsoft pushes its own
Windows systems, Novell's strategy is to partner
and work with other vendors to make its products
work everywhere -- on any box or router
manufactured by any company. That way,
customers don't have to revamp their entire IT
infrastructure to get connected.
By eschewing a single standard, Novell has the
opportunity to make significant inroads in the
directory services market, says the buy-side
analyst. "The opportunity to get in on a company
like that doesn't come along very often."
In the past two weeks, two Wall Street investment
banks have upgraded Novell. On March 12, Morgan
Stanley Dean Witter analyst Chuck Phillips raised
his rating to outperform from neutral, and on March
17, Merrill Lynch analyst Joe Bellace upgraded his
long-term rating to buy from accumulate. Bellace
left his near-term rating at accumulate. Neither firm
has underwritten for Novell.
In his report to investors, Phillips pointed out that
"Novell held a partners' summit last month, and it
was standing room only. The company had to turn
away potential attendees to this invitation-only
event, which drew nearly 300 partners from across
the country. Novell tried the same summit a year
ago and couldn't get enough attendees to put on the
event."
Steve Adelman, Novell's vice president of corporate
development, stresses that partnerships are a key
to the company's growth strategy. Unlike Microsoft,
which promotes only its own products, Novell
customers "say they want everything to work
together," Adelman says. "We're not going to start
building hardware and database, but we'll make
sure our software works with their systems."
Interest in Novell is expected to continue to build at
the company's annual BrainShare user
conference, which began on Sunday and runs
through Friday. A company spokesman says about
6,000 people have signed up to attend the
conference, up sharply from about 4,500 last year.
Phillips also notes Novell's switch to a license
model based on the number of users rather than
servers has made Novell's NetWare software more
easily and broadly deployed. Phillips says
enterprise license agreements grew 54% last year,
and more than 80% of that business was for deals
over $100,000.
Merrill Lynch's Bellace expects Novell to announce
next week an alliance with Compaq (CPQ:NYSE)
and one other company for a fast-caching product
that would improve network storage and bandwidth.
Specialist companies like Inktomi (INKT:Nasdaq)
currently have proprietary caching products, but
these are more expensive.
As long as Microsoft remains a competitor,
however, risk lurks for Novell investors. Microsoft's
first crack at a product may not be great, but
subsequent versions could easily pose a threat.
Just ask Netscape (NSCP:Nasdaq).
Despite that threat, the Boston-based buy-side
analyst, who does not own Novell stock, says he is
keeping an eye on the company. "I might wait a
little while, just to make sure it's going to take the
market, but once it looks headed that way, as an
individual investor, I would take the gamble. The
rewards could be huge." |
