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Novell stakes for success

Novell today put a pretty face on an ugly financial picture, while analysts are concerned about increasing competition and pricing pressure.

Novell today tried to put a pretty face on an ugly financial picture.

The company announced third-quarter revenue of $365 million, more than $173 million off the $538 million revenue mark of the 1995 third quarter. Novell officials said sell-offs of its UnixWare and personal productivity application units help to explain the discrepancy.

Net income for the quarter was $59 million, versus $102 million a year ago.

Last quarter, Novell announced a loss that was larger than expected. Many analysts are concerned about the company's future in the face of increasing competition and pricing pressure.

The NetWare operating system remains a mainstay in local area networks for file and print services, but it is facing stiff competition from Microsoft's Windows NT operating system, which has file, print, and application server capabilities. That's appealing to corporations that want to simplify administration of their networks.

Moreover, the evolution of the Web as an open architecture for sharing information using freely available tools and protocols poses a growing threat to the costly, support-intensive proprietary systems like Novell's NetWare and Lotus Notes. How these companies refocus and redefine themselves, in terms of how the Internet affects their businesses, will strongly determine their future competitive position in the marketplace.

On Tuesday, Novell announced its full-blown entry into the intranet market with IntranetWare, a bundling of NetWare 4.11, a Web server, intranet, and connectivity tools.

In a cramped conference room in Burlingame, California, Novell officials said the success of the company was at stake as it described a strategy based around four core products: NetWare and its IntranetWare bundle, GroupWise messaging software, ManageWise systems management tools, and NetWare Directory Services.

These platforms will be integrated with Windows NT as much as possible, according to Novell.

Dave Cappuccio, an analyst with Gartner Group, a Stamford, Conn.-based consultancy, said this week's IntranetWare bundling announcement is emblematic of Novell's problems.

"This announcement was something they had to do" just to keep up with competitors such as Microsoft and Netscape Communications, Cappuccio said. "I think it will have limited impact on revenues."

Cappuccio said Novell is going after the small business customers it has lost to those rivals with the IntranetWare announcement, but the actual product offers little differentiation from current Netscape and Microsoft products.

Both Microsoft and IBM are expected to make intranet bundling announcements next month, with Microsoft wrapping its offering around its high-availability clustering extensions and IBM tying its release to OS/2 Warp Server.

Cappuccio said the shelf life for revenue from these types of intranet bundles is only about six months. "It's truly a cut-throat business right now," he said.

Today's third-quarter financial results are the first since the company restructured the way it distributes its products. Reseller inventory in the second quarter of this year was one of the primary reasons revenue dropped to $188 million from the 1995 second-quarter figure of $530 million, according to Novell.

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