Novell To Eliminate 900 Jobs

Wednesday, September 6th 2000, 12:00 am
By: News On 6

SALT LAKE CITY--Software maker Novell Inc. is cutting 900 jobs, or 16 percent of its work force, in an attempt to lower operating expenses after dismal third quarter earnings.

Novell said in announcing the cuts Wednesday that it expects to reduce its overall operating expenses by about $25 million per quarter, beginning with the first fiscal quarter of 2001. The Provo-based company currently employs about 5,500 people.

Shares of Novell, which fell 9 percent Tuesday on reports the company was expected to cut up to 25 percent of its work force, fell another 37.5 cents, to close at $10.69 Wednesday on the Nasdaq Stock Market.

Weak sales of packaged business software and a slipping market share in networking software drove Novell's third-quarter earnings down 83 percent to $8.6 million from a year ago on revenue of $270 million.

When those results were announced last month, CEO Eric Schmidt said a much-needed reorganization of Novell's sales force had taken longer than planned and warned the company would have to trim its spending.

"Obviously, we committed to doing this on the earnings call, saying we needed to bring our expenses into line," Novell spokesman Bruce Lowry said Wednesday. "Unfortunately, this is the way we have to do it."

The cuts that began immediately Wednesday will come from a broad range of departments worldwide, Lowry said.

Chief Financial Officer Dennis Raney told analysts Wednesday that the company expects to break even this quarter and return to quarter-to-quarter growth in the first quarter of 2001.

But some analysts said the software company needs to make more significant changes as its mainstay NetWare faces increasing competition from Microsoft's Windows NT in the networking software segment.

"They're surely under a lot of pressure, and their core product line is not as needed as it once was, and that's not going to change," said Charles Phillips, an analyst with Morgan Stanley Dean Witter. "The layoffs today are realistic enough to get them back to profitability in the near term. But unless they come up with some new ideas, this is going to happen again and again."

The company is trying to focus attention on new products such as software that helps speed delivery of Internet content and plans to shift to a business plan that will allow buyers to pay as they use the software.

Novell plans to put the $20 million it expects to recoup from the cuts back into its Internet services.

"Basically, this is both an effort to address an existing problem: bringing expenses down, and unfortunately the cuts come with that," Lowry said. "And at the same time it's an investment in pushing the net services vision forward."