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Schmidt to buff Novell brand

Eric Schmidt, Novell's choice for CEO, says he's ready to meet the challenge of sprucing up the company's image.

Eric Schmidt, Novell's (NOVL) choice for CEO, said today he's ready to meet the challenge of sprucing up the company's image.

Formerly a chief technology officer for Sun Microsystems, Schmidt yesterday was named to the position of chairman and chief executive officer. He replaces Robert Frankenberg, who left in late August.

"The near-term challenge is a communications problem. Most people don't know what Novell stands for," Schmidt said.

Novell is moving to embrace Internet protocols and standards and will offer its directory services on many platforms, including Microsoft's Windows NT.

Schmidt added that the company is heading in the right direction with that approach. "I think it is the ideal strategy--refined services across network platforms."

But his long-term vision of the company is still not clear, as he has not officially stepped into the role. "There are lot of things that come to mind. I am a natural collaborator and I'm going to look at every company in networking and work with them pretty aggressively, including Microsoft," he said.

Early on, Schmidt plans to spend to a lot of time with engineering, using his technical background to the fullest. "I am very pro-Java and pro-Web," he said.

He explained it's an inaccurate presumption that Novell does not have anything to do with the Internet, noting the company has been providing IP services for more than eight years.

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. (See related story.)

"It is less important what the title is and more important what I can do," Schmidt noted.

He added that vice chairman John Young and president Joe Marengi will collaborate with him on projects. "No single person can make it work, but if you view the three of us working together [there is no feat too large]."

During his tenure at Sun, Schmidt has apparently 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."

Although Schmidt has been out of the business side of a company for over ten years, he says he has profited from working under McNealy but pointed also to some of his past management experience as well.

"I have the benefit for working for one of the best CEOs for 14 years, so [the makings of a good CEO] have been pounded into my head," Schmidt said. "But before I was CTO at Sun, I spent years running business units, and my strategy was to build bigger and bigger businesses with open platforms, and this is what I want to pursue."

Novell's stock continued to gain ground today as it rose over five percent to close at 9-5/16. This followed a gain of more than 10 percent yesterday following the announcement.

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 yesterday after participating in a panel discussion at the Networked Economy Conference. "They are an underappreciated asset."

Schmidt added he was 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 and the Fleet Street. That's a feat his predecessors at Novell never mastered, analysts said.

"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 spokesman Raymond Nasr said the company has not made a public comment about the status of finding a replacement for Schmidt.

Schmidt will replace Young as chairman on April 7, Novell said. Young temporarily took the reins last fall after Frankenberg stepped down.

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 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 yesterday 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.

Intranets Editor Mike Ricciuti contributed to this report.