Novell Mixes Poor Financial News With Reorganization

In the shadow of Novell's (stock: NOVL) stark second-quarter financial results, the company is reorganizing. Execs want to move from being product-driven to being "market-driven."

For the quarter ending April 30, Novell reported revenue of $302 million and diluted earnings of 9 cents per share. A one-time royalty payment from Caldera Inc. of $35 million contributed 7 cents per share to the earnings. The company posted sales of $316 million and diluted earnings of 11 cents a share for the same period last year.

Execs blamed the downturn primarily on a sharp decline in traditional packaged-software sales in the global channel.

Eric Schmidt, Novell's chairman and CEO, says the decline in packaged software was an unintended consequence of the company's focus on new products in new markets, such as the company's One Net strategy, built largely on its eDirectory.

In an effort to improve the company's performance, Novell is operating in four distinct business groups, each focusing on specific target markets and sales channels:

- Net Management unit, focusing on established product lines such as NetWare, GroupWise, BorderManager, and ZENworks. Novell will sell directly to large enterprises, while resellers take the rest.

- Net Directory unit, concentrating on developing and delivering software built on the NDS Directory, including DirXML, Single Sign On, and eGuide.

- Net Content unit, supporting high-end Web hosts and service providers whose customers are dot-coms and E-business enterprises. Services will be based on Novell's caching system and content-distribution technologies the company is developing.

- Novell Customer Services unit, offering consulting, education, and technical support services for the other three groups.

"The business units we announced today sharpen our focus. In large organizations, focus is always the key. Now we can focus on the markets and [what] we need to address to make this happen. This structural change will help on our execution," Schmidt says.

Novell also revealed a flurry of personnel changes. Nicholas A. Tilacos, who joined Novell on May 10 as senior VP of worldwide sales, resigned for personal reasons and will be replaced by Rich Nortz, who previously served as senior VP for Novell Customer Services. Dave Shirk, previously senior VP of product development, was promoted to chief technology officer and will be responsible for Novell's product strategy and direction.

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