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Novell's sales up 13 percent

The network software maker posts sales and earnings increases but fails to meet Street expectations by a cent today for its fiscal 1999 first quarter.

Network software maker Novell posted a 13 percent increase in sales and doubled its earnings over the previous year, but failed to meet Street expectations by a cent today for its fiscal 1999 first quarter.

The company posted earnings of 29 million, or 8 cents a share, on revenue of $286 million for its most recent quarter. That compares with earnings of $14 million, or 4 cents per share, on revenue of $252 million for the same period the previous year.

Consensus analyst estimates compiled by First Call pegged the company's earnings at 9 cents per share for the quarter. That estimate was revised from 8 cents per share earlier this month.

Despite another drop on Wall Street today, Novell's stock ended the session up nearly 10 percent in heavy trading on anticipation of the company's financial results. The company blew away estimates for its previous quarter.

The firm has hinged much of its future on its flagship NetWare server-based operating system and related networking software called Novell Directory Services, or NDS. The company hopes a set of applications written to take advantage of its NDS technology can drive sales of Novell software into new markets. The company has also embarked on a partnership strategy to build support for NDS through third party software development.

"Looking forward, the stage is set for Novell and its partners to build innovative services for a rapidly growing directory market," said Eric Schmidt, Novell's chief executive, in a statement.

The company's stock was raised today to "outperform" from "neutral" in anticipation of its earnings announcement by Morgan Stanley Dean Witter analyst Chuck Phillips. The analyst raised his earnings-per-share estimates 6 cents to 48 cents per share for the 1999 fiscal year.

Coverage on Novell was also initiated today with a "buy" rating by NationsBanc Montgomery Securities.

For the quarter, Novell said 88 percent of the company's revenue was related to its directory software. Sales of versions of NetWare with NDS totaled $146 million, up 16 percent from the same period the previous year. Networking software, such as the company's collaboration tools and administration products, grew 50 percent over a year ago, to $53 million. Related infrastructure software and services and consulting revenue totaled $52 million.

Older products accounted for the remainder of the company's sales.

Analysts said the company appears to have regained its footing after a downturn in its fortunes in the mid-1990s.

"I think the company's on a nice track," said Joel Achramowicz, a financial analyst with Preferred Capital Markets. "I think it's encouraging. It's been a tough story, but the company's back."

Much of Novell's resurgence can be attributed to the arrival of former Sun Microsystems technology guru Eric Schmidt nearly two years ago and the executive team he subsequently brought in.

In conjunction with his arrival, Novell embarked on a new strategy that left it with more room to move against software giant Microsoft and its corporate Windows NT operating system.

The company has maintained an installed base of more than four million server systems, according to market researcher International Data Corporation. Though Windows NT continues to make market share strides, Novell appears to have solid footing in the market, selling more than one million copies of its NetWare operating system in 1998, according to preliminary IDC figures.

"The company is much more focused and they're moving forward," noted Jean Bozman, analyst with IDC.

During the quarter, Novell spent $77 million to re-purchase five million shares in the company. The company's board authorized the purchase of up to 10 percent--or 35 million shares--of the company's stock in June of 1998. Since that time, Novell has spent $322 million to purchase 26 million shares.