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Wall St. likes new Novell CEO

Analysts say that Novell's CEO-elect Eric Schmidt just may have what it takes to turn around the troubled networking software company.

Novell's (NOVL) choice of Sun Microsystems' CTO Eric Schmidt may not have been the most obvious pick for its top slot, but it appears to have won Wall Street's tentative approval.

Novell today named Schmidt as its chairman and chief executive officer, a job open since Robert Frankenberg left in late August.

Wall Street analysts reacted favorably to the appointment, despite his lack of business management experience. Schmidt spent 14 years with Sun in a variety of management and technical positions and played a key role in promoting the Java language. In the last year, he's been nearly as visible as Sun CEO Scott McNealy and apparently has won fans on Wall Street.

"I think he's well-equipped to handle Novell in its entirety. I disagree with the statement that he is strictly a technology guy," said Terry Murphy, an analyst with Smith Barney. "He ran the software products division at Sun, where he was handling marketing, sales, and technical areas. So he has some general management experience."

Novell stock rose more than 10 percent today to close at 9-7/16.

Schmidt himself says the move shouldn't be a surprise. Novell and Sun have enjoyed an increasingly cozy relationship in recent months. First, Novell embraced Java wholeheartedly in all its products, providing developers an easy-to-use platform to develop on. Then Sun licensed the Novell Directory Services (NDS) network directory for its Solaris operating system.

Schmidt said Novell has already modernized its operating system and services by adding support for Internet protocols. But the company is still saddled with a reputation for promoting proprietary technologies, a reputation that Schmidt's hire may help the company eliminate.

"I'm looking forward to it. I like the company a lot," Schmidt said today after participating in a panel discussion at the Networked Economy Conference. "They are an underappreciated asset."

Schmidt says he's quite familiar with Novell's kind of business customer. "I've spent a lot of time in the enterprise with those kinds of customers, I've wanted to be in the networking software business for a long time."

Schmidt's greatest contribution to Novell may be his ability to articulate complex technology in a way that is palatable for both Wall Street analysts and the media. That's a feat his predecessors at Novell never mastered, analysts say.

"Novell needs someone who can crystallize their product direction for the Street," said Peter Wood, an analyst with the S&P Equity Group in New York. "Since Schmidt has a firm background in technology, maybe he is the man who can do that."

"In particular, I think he will be able to articulate that Novell has Novell Directory Services and the strategy for licensing the technology. That's something he should be able to explain to generalists," Smith Barney's Murphy added.

Still, Schmidt is taking responsibility for a company that has lost its long-held reputation for innovation and is quickly losing market share in its most important market--network operating system software--to Microsoft and other vendors.

"Novell is trying to refocus on its core networking business. But they have not shown me enough to recommend the stock," Wood said.

The departure of Schmidt is seen as a blow to Sun. "It's a big loss for Sun. It will probably be pretty hard to replace him," said Murphy.

Sun representatives were not available for comment.

Schmidt will replace chairman John Young as of April 7, Novell said. Young, who temporarily took the reins last fall after Frankenberg stepped down, will become a vice chairman.

But a new role for Joseph Marengi, who replaced Frankenberg as Novell's president, has yet to be determined. "He and Eric will be working that out. It will take time for both of them to get into their new roles," a company spokeswoman said.

When asked today if Marengi would stay at the company, Schmidt said "you should ask him."

Marengi has a background in sales and recently took himself out of the running for the CEO post when it became evident the CEO search committee was leaning toward someone with a more technology-based history.

Schmidt said Marengi is welcome to stay with the company if he chooses. "He's doing a great job. He and I are actually very close friends."

Marengi today said Novell's business is on track so far in its second quarter, which ends next month. "All I can say is we're on track at this point in our quarter," he told Reuters.

Wall Street expects the company to earn 17 cents a share in its second fiscal quarter, according to First Call.

Schmidt said he will attend Novell's annual BrainShare '97 user conference next week in Salt Lake City, although he won't start his new job for another three weeks. Novell has rescheduled its annual meeting for May 2 to allow for Schmidt's participation.

Christine MacDonald and Ben Heskett contributed to this story.