March 13, 2001 1:10 PM PST

Can Novell revive Cambridge Technology?

Troubled Cambridge Technology Partners, long a takeover target, may finally be off the sale block, but its future with Novell isn't exactly clear, analysts say.

"It's a move, but I don't know if it's a good move," said Meta Group analyst Carl Lehmann. "Novell isn't one of the strongest partners to have. I think this'll prove that misery really does love company."

Analysts have expected a buyout for some time to help pull Cambridge out of its extended rut. Late Monday, the company was sold to network software provider Novell in a $266 million stock deal.

Although many analysts have viewed the acquisition route as the best option for the troubled systems integrator, the news of the deal immediately bred uncertainty on Wall Street regarding its potential success and left some analysts relatively unfazed.

Forrester Research analyst Christine Ferrusi-Ross, who called the deal "ho-hum," said the move overall for Cambridge will have some benefits but overall will have a nominal effect on the way the company will continue to operate.

In a sense, "it's positive for Cambridge because of the cash flow. They are part of a profitable company now...but in the grand scheme of things, it doesn't change anything," she said. "Novell will let (Cambridge) operate independently, so that doesn't really change the way Cambridge already does business."

Once a Wall Street darling, the Cambridge, Mass.-based company has for months been struggling with a plummeting stock and revenue shortfalls. Last week, Cambridge warned that its first-quarter sales would miss analysts' estimates. In January, the company announced it would cut 280 jobs as part of an effort to reach profitability.

But unlike many other stumbling players in the Internet consulting sector, which has been badly bruised by the dot-com downturn and overall slowdown in technology spending, Cambridge's woes hit much sooner, and the company has since continued its downward spiral.

Cambridge was one of the first traditional consultancies to turn its focus to the lucrative Web. It grew fast, and as many analysts said at the time, it also grew beyond its ability to manage itself. Soon, the onetime highflier started posting negative financial results, which fueled a stock drop, employee migration and executive turnover.

Forrester's Ferrusi-Ross said that even though Cambridge was in a messy state, the company was still able to find a suitor--an indication of the ongoing importance for services.

"As poorly as Cambridge had been doing, as beaten up as they've been, they still got what they wanted" out of the deal, she said. As part of Monday's deal, Novell named Cambridge Chief Executive Officer Jack Messman as the company's new leader and announced that Cambridge will operate as an independent consulting subsidiary of Novell.

"That really says something (about) the strength of the services companies relative to product companies," Ferrusi-Ross said.

Still, some analysts remain uncertain about the Novell-Cambridge marriage. For one, most acquisitions and mergers in the consulting sector aren't successful, primarily because of integration concerns and culture clashes: When a company buys a consulting firm, it is essentially buying its people.

Meta's Lehmann said the deal will bring together a handful of "good strategists, engineers and solid infrastructure technology," but whether both companies can turn that combination into a success is still up in the air.

Cambridge and Novell face not only integration hurdles, but also the need to "collectively redefine themselves and reposition themselves," Lehmann said. They need to successfully tap into more lucrative technology sectors such as business-to-business, CRM (customer relationship management) software and supply-chain management software, Lehmann said.

"They need to become a solutions company with demonstrable value in various aspects of business-to-business--not just an infrastructure company and not just an ad hoc systems integrator," he added.

The business-to-business sector has heated up during the past year as more companies look for ways to conduct business with their suppliers, customers and partners over the Web. Software makers such as i2 Technologies, Siebel Systems, Ariba and Commerce One already play in the lucrative market.

"Novell and Cambridge are not there yet," Lehmann said. "They've got lots of challenges ahead of them. This is not necessarily a marriage made in heaven."

 

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