Novell Announces New CEO--But Can He Save A Sinking Ship?

Ronald Hovsepian has been a rising star within Novell since he joined the company three years ago. But with a dropping stock price, declining sales of NetWare, and stiff competition in the Linux market, it's going to take more than star power.

Novell today announced a major management transplant as it struggles to arrest a financial slide that brought its stock down 23% in a single week. President and COO Ronald Hovsepian now gets his turn at bat, taking over the company's CEO position from Jack Messman, who had served two tours with Novell as CEO and has been a board member since the company's founding.

Messman will give up his board seat in October, when he departs the company for good. Meanwhile, CFO Joseph Tibbetts left Novell this week without a permanent replacement. Novell's current VP of finance and corporate controller, Dana Russell, will fill the CFO slot while the company looks for a permanent replacement.

While Hovsepian has been a rising star within Novell since he joined the company three years ago, it's unclear how his vision compares to Messman's, who oversaw Novell's key $210 million acquisition of SuSE Linux in January 2004. Hovsepian spoke to analysts and the press on Thursday via a conference call, but his comments were hardly a revelation.

As it has for the past few years, Novell's priorities are its Linux operating system and its identity and resource management software. "A narrow focus and energetic push" will be critical to Novell improving its competitive position, Hovsepian said Thursday. The core market opportunity for Linux lies in displacing Unix and older versions of Windows rather than competing with Windows XP or much-anticipated Vista and Longhorn versions of the operating system. Hovsepian noted that there are more than 5 million Windows installations in the U.S. alone that could be good targets for Linux migration.

Of course, this is significant for Novell only if the company gets to these potential accounts before Red Hat or Sun Microsystems. Research firm IDC late last year reported a wide gap between Linux market leader Red Hat, with a 60% share, and Novell, which has 20% of the Linux market. Sun has also clouded Novell's vision by open sourcing its Solaris operating system.

Novell's once formidable NetWare network operating system has seen a 15% annual decline in sales, according to financial analyst firm Credit Suisse, which leaves little hope that NetWare can be a substantial part of Novell's rebuilding effort.

Hovsepian, who spent 17 years with IBM, has apparently made a big impression on Novell directors. In May he was named president of worldwide field operations, a position the company created to oversee all regional presidents as a way to communicate a consistent message globally. Hovsepian was chosen for the position due to sales model changes he implemented in North America to reduce conflicts over territories and channels. In November, Novell promoted Hovsepian to take over both the president and chief operating officer positions.

Yet Hovsepian's rise came as former SuSE executives jumped ship. In November, Suse Linux founder Hubert Mantel announced his resignation, while in May Novell parted ways with former SuSE Linux president Richard Seibt, who resigned after joining Novell as president of the company's EMEA (Europe, Middle East, and Africa) region.

The SuSE acquisition initially held much promise for Novell. The company's revenue rose about $45 million between fiscal 2004 and fiscal 2005 to about $1.20 billion but has declined since. Credit Suisse estimates fiscal 2007 revenue will be $1.03 billion.

Novell's change at the top can only help business, Credit Suisse wrote Thursday in a report. The decision to promote Hovsepian is "a much needed and important step to restore some credibility and relevancy to Novell," Credit Suisse said. "Hovsepian clearly understands the challenges and the opportunities needed to fix the company. This change is an important first step and frankly something that should have happened much sooner, nevertheless, we think there is some time left on the clock for Hovsepian to make his mark."

Key questions remain, however, including what exactly that "mark" will be and how Hovsepian will get there.

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