2HRS2GO: Novell looking strong

Novell Inc. (Nasdaq: NOVL) still rules the world of network management software.

You used to hear a lot of talk about a decline in the face of the Internet or a looming threat from Microsoft, but Novell's results speak volumes. Strong sales for the latest versions of Netware and other products, growing acceptance of Novell Directory Services and a lack of any serious competition so far paint an appealing picture.



Novell: Back as a strong Internet play?



If analyst consensus is any guide -- it's been on target or too low in recent quarters -- Novell should report a fifth straight quarter of year-over-year improvement, when it releases fiscal second quarter earnings this afternoon. First Call's survey of six analysts predicts a profit of 10 cents a share.

"I feel very good that they'll make the number," says Joel Achramowicz, analyst with Preferred Capital Markets. "Netware 5 is selling very well. The customers I've spoken with over the last week and a half all speak positively about NDS 8. And there a lot of things coming out."

The company's revival in the last year and a half is a tribute to Eric Schmidt, who came on as chairman and CEO at a time when Novell looked like it was on its way to becoming a poster child of network obsolescence. But cost-cutting combined with a rejuvenation of Netware and smart marketing of NDS helped turn things around.

Where critics once said the Internet would make Novell superfluous, just the opposite happened: Novell smartly recast its product line as a superior method of IP network management, and actually has risen along with the Internet wave. Much has been written about the Bill Gates memo that turned Microsoft onto the Internet a few years ago; Novell did much the same thing a little bit later.

At least for now, Novell is the Microsoft of corporate network directories -- 80 percent of Fortune 1000 companies use NDS, according to International Data Corp. And with a list of partners that includes bluechippers like Compaq, Dell, IBM, Lucent, Oracle, Novell has a lot of distribution help to maintain its position.

The capstone to that might be the king of networking hardware. "Cisco will do a deal with very soon regarding NDS," says Achramowicz. "And that'll be very strong for the stock. ... With Cisco coming on board, it's no doubt that Novell is the undisputed leader in directory technology."

Given that kind of backing, Novell won't have to worry about much, certainly not vaporware announcements from Microsoft, whose Active Directory continues to wait on -- or perhaps cause -- delays in NT 5.0/Windows 2000/Windows Whatever. By many accounts, Microsoft's offering continues to lag NDS in many areas. Some people, including Achramowicz, still believe that Microsoft could end up licensing NDS.

I doubt it -- Gates might as well let the whole directory thing go, if he's going to do that. In any case, whether Microsoft jumps on board doesn't matter, because NDS isn't going away, and neither is Novell.

Of course, everyone thought Novell was in an unassailable position before its tumble earlier this decade, so nothing is guaranteed. And trading at more than 50 times estimated 1999 earnings, Novell isn't an overlooked stock.

But good online investments aren't cheap. And right now, Novell is as solid of an Internet play as you're going to find.

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