Novell shares tumble on analyst downgrades

Shares of Novell fall as much as 12 percent before closing down 4 percent, after analysts revise their ratings a day after the network software maker reported fourth-quarter earnings in line with Wall Street estimates.

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Shares of Novell fell as much as 12 percent today after analysts downgraded the company's stock following fourth-quarter earnings in line with Wall Street estimates.

Shortly after the opening bell, the network software maker saw its shares drop 2.75 to 19.25 on volume of 7.3 million shares. The network software maker finished at 21.13, down .88 or 4 percent.

In research notes, Morgan Stanley analyst Chuck Phillips said he cut his rating on Novell's stock to "neutral" from "outperform," which sent the Provo, Utah-based company's shares tumbling in early morning trading. Analysts at Volpe Brown Whelan also downgraded the company's stock to a "neutral" rating from a "buy."

Phillips cited concern over the slow movement of sales for some of Novell's new products. In notes, Phillips wrote, "The new products Novell has discussed are off to a slow burn instead of an explosive impact on the financials."

Phillips said in research notes that some new products "look interesting" but aren't providing enough near term sales to add to the company's top line, pointing out its caching product, which produced less than $2 million in the quarter. With Novell's December shipment for the latest version of its core operating system product NetWare 5.1, Phillips said most large companies get the product for free through master license agreements, so potential for a boost in revenues due to the product cycle isn't likely.

Yesterday Novell reported fourth-quarter earnings of $74 million, or 21 cents per share--a 76 percent increase compared with the $42 million of the same period a year ago. Revenue for the quarter was $345 million.

However, taking into account the resolution of an outstanding Internal Revenue Service tax issue that boosted the company's profit per share by 4 cents, Novell posted earnings that were in line with analyst estimates of 17 cents per share for the quarter, according to First Call.

The company missed so-called whisper estimates of 18 cents, listed on the Internet, according to Bloomberg.

A week ahead of its fourth-quarter earnings release, analysts had downgraded the company's stock on concern over its marketing abilities. As reported, analysts at the time said the recent departure of marketing executive Chris Stone and "varied departures and layoffs of marketing personnel" could impact efforts to sell a number of new products.

Novell has seen high-level marketing executives leave the company in recent months.

Last month, the company announced the resignation of Patti Dock, vice president of marketing. Dock was the third marketing exec in a series of others to leave the company and whose departure was connected to an ongoing overhaul of the company's marketing and product management units. Prior to Dock's departure, Novell's former senior vice president Chris Stone left to start a new company. In August, John F. Slitz, who was in charge of Novell's marketing strategy, resigned. Slitz joined Novell two years ago and reported directly to chief executive Eric Schmidt.

Bloomberg contributed to this report.