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Novell's health improves

Novell's profitable quarter may be a step toward renewed financial respectability for the networking company.

Novell (NOVL) appears to have regained some measure of financial equilibrium, meeting analysts' expectations today by reporting flat earnings for the fourth quarter and a 20 percent revenue dip.

The company is still fighting to pump up its financials to its year-ago levels. It also remains a company in transition with no new CEO in place yet to follow Robert Frankenberg, who left at the end of August.

But the current brain trust's strategy of refocusing the company by evolving its NetWare network operating system into IntranetWare, a bundling of Internet tools with the base platform, may be working. Company officials reported 38 percent growth in NetWare and IntranetWare revenue, 24 percent growth in GroupWise messaging product revenue, and 18 percent growth in ManageWise network management software revenue in the fourth quarter over the third quarter.

The company also pleased users and market analysts by announcing plans to rewrite Novell Directory Services, generally regarded as the company's primary strategic advantage, to run on Microsoft Windows NT and a variety of Unix platforms. The company is expected to announce any day an additional version of NDS for IBM's AIX Unix platform.

However, it may take a couple more quarters to prove definitively that the plan is working. The networking software vendor reported revenue of $384 million for the quarter ending October 26, down from $481 million a year ago. Net profits were $59 million for the quarter, the same level they were a year ago.

The $103-million revenue drop in the fourth quarter may also reflect the recent decision to sell off the personal productivity applications unit that carried the PerfectOffice suite and the high-end UnixWare operating system.

For the year's end, Novell revenues dropped 30 percent over the previous year to $1.4 billion. Net profits plummeted 63 percent to $126 million for the year. Earnings per share for fiscal 1996 were 35 cents, compared with 90 cents for fiscal 1995.

"Our actions continue to be directed at energizing the company for profitable revenue growth," Novell chairman John Young said in a statement. Young and Joe Marengi, the current president, are leading the company while it searches for a new CEO.

The quarterly results are still an improvement compared with those for the second quarter, when the company posted a huge loss that it attributed to leftover inventory on reseller shelves and a change in its distribution policy. The second quarter had some analysts wondering about the continued financial viability of the company, but Novell seems to have calmed Wall Street a bit.

Novell's earnings were in line with Wall Street analysts' estimates, according to First Call.

"[It] was pretty much in line with estimates. It was about a penny below our expectations," said Chris Galvin, an analyst at Hambrecht & Quist.

But Novell still has work to do to recoup its former prominence in the industry. "Generally, they're still challenged by the rapid emergence of Windows NT and the proliferation of systems built for the Internet, rather than proprietary systems like Novell's," said Galvin.