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Slow sales hurt Novell stock

The struggling networking vendor sees its shares plunge after releasing preliminary second-quarter results that show an unexpected revenue slowdown.

Struggling networking vendor Novell (NOVL) saw its shares plunge as low as 23 percent today after releasing preliminary second-quarter results that show an unexpected revenue slowdown.

The company's shares tumbled as low as 7 in morning trading, before finishing the day at 7-5/16, down 1-23/32 from yesterday. Novell said after the market's close yesterday that its second-quarter revenues will fall short of the previous quarter, as sales to small and medium-sized businesses fell off unexpectedly. It expects to post revenues of $300 million to $335 million for the quarter, down from $375 million in the previous quarter.

"We had stated [before] that we expected revenue growth in this current quarter to be over the previous quarter," said Jonathan Cohen, a spokesman. He added that the company also had posted earnings of 15 cents a share in the first quarter and analysts were expecting net earnings of 17 cents a share this quarter.

The company still expects to report a small profit, despite the lower-than-expected revenues, Cohen added.

Novell attributed the revenue shortfall to early reports from original equipment manufacturers and distributors that sales of Novell's boxed software products to small and medium-sized businesses are slower than in the previous quarter.

"We saw greater competition with Windows NT in the small network market, as well as a faster-than-expected decline in sales of some of our older products like NetWare 3.0 and desktop IP products," Cohen said.

In light of the revenue drop-off, Novell plans to review its operating expenses, product inventory in the distribution channel, and product mix. Cohen said he could not comment if layoffs will be included in any belt-tightening.

Last month, Novell executives attending the BrainShare '97 user conference portrayed their company as reenergized and prepared to regain its lead in the networking market.

Leading the charge was newly appointed chief executive and chairman Eric Schmidt, who previously served as chief technology officer at Sun Microsystems.. The move had been applauded by Wall Street, which viewed Schmidt as both a technological leader and a capable executive. Schmidt took the helm last month.

Novell expects to report its second quarter May 28.