Novell beats expectations

Novell (NOVL) today posted declining first-quarter revenues and profits as the economic turmoil in Asia took a toll, but the networking software maker beat analysts' expectations for the second consecutive quarter.

The company, which is moving forward from its restructuring last year, posted a net profit of $14 million, or 4 cents a share, down from profits of $50.8 million, or 15 cents a share, reported for the previous year. The first quarter marked the second back-to-back quarter in which the company operated in the black.

Analysts had expected Novell to post profits of 2 cents a share, according to First Call.

Company executives attributed the stronger-than-expected profits to tighter controls on expenses. During the quarter, operating expenses totaled $192 million, down $20 million during the fourth quarter and $45 million lower than year-ago figures.

Revenues for the quarter, ended January 31, were $252 million, a drop from $374.8 million reported a year ago. Revenues also declined over the previous quarter, largely as a result of the Asian financial crisis.

Novell said sales in the United States contributed 57 percent of total revenue, while Europe, the Middle East, and Africa accounted for 28 percent of revenue. The Asia Pacific region and the Americas totaled 9 percent and 6 percent, respectively.

A second consecutive quarter in the black could offer the first signs that the networking software player has rebounded from a series of disastrous moves that took the company away from its core competency. Those strategic errors were compounded by turmoil in the boardroom, resulting in Robert Frankenberg's ouster in the fall of 1996.

Investors in the company apparently wanted to see stronger financial performance before pushing up the company's stock. Novell shares have been all but comatose for the past two quarters, but closed at 8-23/32 today, up 5/32 over yesterday. Christopher Galvin, an analyst at Hambrecht & Quist, believes focusing on growth is a first step toward reawakening the company.

"Profitability is a step in the right direction, but the goal is to reaccelerate revenue growth, said Galvin. "They seem to have established a base on their operating expense profile. They're planning to bring new products into market to reaccelerate growth, but it's too early to definitively say they're building a channel for these new products. In the second half of year they'll be bringing an upgrade to NetWare, and that's also very important. NetWare is their majority revenue source."

Novell's flat stock performance aside, company leaders remain assured of turning things around.

"It is gratifying to me that, at the six-month mark following our restructuring, we are seeing the effectiveness of our new management controls and priorities," Eric Schmidt, Novell's chairman and CEO, said in a statement. "We have made further progress in aligning the business model, clarifying focus around a handful of key initiatives, and expanding our product portfolio. The company is executing plans it outlined last year to become the leading provider of network platforms with advanced Internet services."

The improved financial picture for Novell could not come at a better time. The company will hold its annual user conference in Utah next month, and Schmidt, who arrived with high expectations, now has a year at the company behind him.

Due in part to Schmidt's efforts to speed up product development, Novell shipped new Internet-related software products during the first quarter, including BorderManager, FastCache, NDS for NT, Netscape Server products for NetWare servers, Year 2000 solutions for NetWare, and an updated version of ManageWise.