Novell was hit this quarter with both sluggish sales of its off-the-shelf software products and lagging revenues from licenses sold to server manufacturers. As part of its comeback plan, the company announced yesterday that it will cut 18 percent of its workforce and halt shipments to distributors until its inventory is sold off. The two distribution channels account for about 54 percent of Novell's revenues.
Novell shares lost as much as 10 percent of their value in early morning trading but rebounded somewhat to close at 7-27/32, down 7/32 from yesterday.
Novell, falling short of Wall Street's estimates, posted a net loss of $14.6 million, or 4 cents a share, for the period ending April 30. That compares with a loss of $55.4 million, or 15 cents, a year ago. Wall Street had expected the company to post a profit of 3 cents a share for the quarter, adjusted from earlier expectations of 17 cents.
Revenues, however, grew compared to the same period last year, coming in at $273.1 million for the quarter, up from $188.2 million a year ago.
"Novell is taking corrective measures to realign its resources, better manage and control its business, and more rapidly implement the company's strategies to become a leading Internet-intranet software provider," said chief executive Eric Schmidt, in a statement.
Schmidt added that Novell will cut 1,000 employees from its workforce in the third quarter, leaving it with about 4,800 employees worldwide.
That will force the company to take a one-time restructuring charge of $25 million to $35 million in the third quarter. Novell expects to post an additional operating loss in the third quarter because it is now withholding shipments to distributors. Fewer shipments, of course, mean less revenue.
Novell plans to assist its resellers by matching existing inventory in the channel to specific product demand around the world.
"Current levels of product inventories are no longer appropriate as Novell's business continues to experience competitive pressures and to shift from a high reliance on boxed software distribution to a changing mix of boxed products and multiproduct licenses," Schmidt said. "Our objective is to get ahead and stay ahead of these distribution changes."
Company officials cited slow growth in small-business sales as a prime factor in its sluggish performance.
Small businesses were once a cornerstone of Novell's business, but the arrival of Microsoft Windows NT has cut Novell's share of that market. Novell is currently undergoing an evolution, embracing Internet standards and attempting to become a one-stop shop for customers looking for networking infrastructure software.
Novell will go ahead with plans to open a new San Jose, California, campus for the 1,000 employees based in that area, according to a spokesman. Construction on the site is scheduled to begin later this year.