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Technology Stocks : Novell (NOVL) dirt cheap, good buy? -- Ignore unavailable to you. Want to Upgrade?

To: DJBEINO who wrote (27041)	5/26/1999 12:22:00 PM
From: Freeflight	Read Replies (2) \| Respond to of 42771

Licensing Model The shift to per seat, enterprise licensing is an important driver for Novell. Large customers are looking to cut down on the administrative overhead of tracking licenses and users per NetWare server. The enterprise agreements allow customers to license NetWare (and related products) on a per-desktop basis via a one time fee and any number of users can access any number of servers. The simplicity of this model is appealing and usually results in products being licensed more broadly and quickly than they would have. Novell gets on-going maintenance revenue of 18% of the license fee on an annual basis which is much like traditional enterprise software contracts. These volume licensing agreements are also applicable to the channel and require certain minimum purchasing levels. Volume licensing agreements were up 53% in the first half of the year. Master license agreements (direct with large end users) were up 30% year to year. On a combined basis, volume licensing agreements were 54% of revenue, continuing an upward trend over the last two years. Site licenses for directory- enabled products and services were up 61% to $181 million in the quarter. Consulting is Key Novell has stepped up to help customers implement directory services. Consulting and training revenue grew 47% to $44 million in the quarter. Consulting is low-hanging fruit for Novell since there is a chronic shortage of directory design expertise. Novell can add value and accelerate implementations by taking on this work. The company has found a way to co-exist with the resellers and not threaten lower level services the resellers provide. Consequently, we expect continued acceleration in consulting revenue resulting in other benefits such as account control and shorter implementation times. Outlook Novell is thinking big about product flow and that should be the focus. The company knows it has to get as many products out, stable, and in use as it can before Windows 2000 ships. 2H plans are aggressive for ship dates and Novell has a lot on its plate to deliver. Interestingly, Novell has begun to talk about single sign-on as the most requested product from customers. A lot of the systems management companies have been trying to solve this problem for years. The problem has always struck us as inherently related to directory services. If the company can deliver something viable this year to begin address single sign-on, there is a ready market waiting. 1H99 products: ZenWorks 2 NDS version 8 Novell Border Mgr NDS for Sun Solaris Novell Small Business Suite 5 GroupWise 5.5 with support for 20 languages 2H99 Products: Internet Caching Appliance Universal Console Internet Messaging System (Q2 Beta) Windows/NT Branch Office Management Longer term product initiatives: Novell Cluster Services (Beta available) Modesto (64 bit support; mid 2000) 6 Pack (8 way SMP support) Product Flow Detail Internet Caching System: Internet cache's storing copies of commonly used Web content/pages close to the point of consumption to eliminate performance bottlenecks. Novell stripped out the caching technology from its Border Manager product and in partnership with hardware OEMs, bundled it with Intel servers to form a caching appliance. Dell announced plans to deliver the Novell ICS on its servers. We spoke with Compaq at the conference and they will follow soon with an ICS appliance. The product will be sold only through OEMs and is probably the most relevant for near term revenue of all the products announced at the conference. Internet Messaging System: IMS is Novell's server side email and messaging infrastructure for ISPs. Given the growing volume of email traffic, ISPs are running into scalability issues and Novell hopes to siphon off part of this market with its high performance offering. This looks like a logical place for Novell to play but they are somewhat late to this segment since the first generation of this infrastructure has been built. NDS version 8: The next release of NDS 8 continues Novell's tradition of intellectual leadership in directory technology. NDS is on a separate release cycle from NetWare itself. The new version of NDS will beef up security features (native PKI and SSL support) and handle more objects (up to nearly one billion, which the company demonstrated at the conference). Good marketing headway here and raises the bar for Windows 2000. ZenWorks 2: Desktop inventory and administration tool. This product has been hit for managing desktop configurations and software inventory remotely through NDS. The new version helps check for Year 2000 problems on the desktop. Novell Console: Novell plans to develop a common console from which to administer multiple Novell products. By having a single point of convergence and common user interface design for ZenWorks, ManageWise, software distribution, and other services, Novell can present a consistent, easier interface for network administrators. Similar to Microsoft Management Console, the Novell console should serve as centralized mission control over time. Novell Cluster Services: The ability to run NetWare on clustered machines will appeal to a select few high end users but the technology is an important marketing milestone. 6 Pack - 8 way SMP support should help users wanting to consolidate servers. Helps with large shops. Modesto - 64-bit support for the Merced chip. Novell has the product running internally and well be there when Intel announces. The information and opinions in this report were prepared by Morgan Stanley & Co. Incorporated ("Morgan Stanley Dean Witter"). Morgan Stanley Dean Witter does not undertake to advise you of changes in its opinion or information.