September 22, 2005 11:28 AM PDT

Novell, under pressure, will buy back its stock

Novell announced a plan Thursday to repurchase as much as $200 million worth of its own stock over the next year, a move that dovetails with recent, loud requests for financial changes at the software company.

Earlier this month, Blum Capital Partners, which owns more than 5 percent of Novell's shares, broadcast its wish that the company buy back some of its own stock. That request came on the heels of a similar one from Credit Suisse First Boston analyst Jason Maynard.

Stock buybacks deplete a company's cash, but retiring outstanding shares also increases the ownership stake of existing shareholders. Blum Capital suggested repurchasing $500 million worth of shares, a considerably more aggressive buyback than the $200 million Novell's board approved.

Blum and Maynard also suggested Novell sell off some businesses and focus more on Linux and other open-source software. In a statement announcing the share repurchase, Novell Chief Executive Jack Messman didn't offer details, but he did indicate that more changes are coming.

"Our stock buyback is just one of the elements of a plan aimed at enhancing shareholder value and securing Novell's future as an important provider of solutions to the IT market," Messman said in the statement. "The buyback demonstrates the board and management's confidence in our financial strength and strategic plan."

But not everyone is impressed. "A buyback is good on the face, but it's token" in this case, said Jefferies & Co. securities analyst Katherine Egbert, who doesn't own the stock or have banking business with Novell. "It reduces cash and doesn't really move the needle on earnings per share this year or next."

Novell holds second place in the Linux market to Red Hat, but by Maynard's estimate, has been losing market share. From 2002 to 2004, Novell's share of Linux license revenue dropped from 25 percent to 20 percent, while Red Hat's increased from 40 percent to 63 percent, he said.

Novell also sells server software, management software and its NetWare operating system, which when combined with Suse Linux Enterprise Server is sold as a product called Open Enterprise Server.


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Sounds backwards to me.
Okay, so the end of the article says "Novell also sells server software, management software and its NetWare operating system..." That makes it sound like server software isn't their priority, which it always has been and should remain.

Even if Novell is making the transition from NetWare to Linux for their server software, that doesn't mean that they are becoming a desktop OS company. From everything I've seen, it looks to me like their desktop software is there mostly to compliment their server software - not the other way around. If this weren't the case, I would expect them to be dropping Windows support.
Posted by ddesy (4336 comments )
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To be completly honest I haven't been all that impressed with their Linux move. They've had a lot to do, but SuSe linux just seams bloated and slow to me. I like the fact they are integrating a lot of the management tools and eDir from the netware world, but something just seems patchy to me about the linux servers.

To be honest I am liking Debian distro a lot better than RedHat styles. I'm no Linux expert so the chance of me missing something is great, but over all I have had much better luck setting up a Debian Server and getting updates than I have with SuSe and YaST/RedCarpet. Eitherway I get SuSe products as part of my NSBS package so I will keep working away at it, but for a linux server I am leaning more toward a debian distro.
Posted by System Tyrant (1453 comments )
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