September 6, 2000 9:50 AM PDT

Novell to trim work force by 16 percent

Software maker Novell today confirmed widespread speculation that it would cut its work force in an effort to return to profitability, announcing a staff reduction of about 16 percent.

The Provo, Utah-based company said it will slash about 900 employee positions, bringing its worldwide work force to approximately 4,600, and will take a fourth-quarter restructuring charge of up to $50 million.

The company faces increased competition from Microsoft, which earlier this year unveiled Windows 2000, its new computer operating system for businesses.

The announcement puts an end to speculation about staff cuts following hints from company executives in recent months that drastic measures would be needed for the company to recover from three quarters of lackluster sales.

The action is a pragmatic one, said Chuck Phillips, an analyst at Morgan Stanley Dean Witter. "It reflects the reality of the company's revenue line."

By itself, though, the move will not be enough to turn things around, he said. "No one ever revived a tech company through cost cutting. They still have to come up with winning products to have a long-term turnaround."

Microsoft contributed to Novell's woes, but Novell also hurt itself by not moving quickly enough into new areas when things were good, Phillips added.

In a statement, Novell said it plans to write off other assets and take a pretax restructuring charge of between $40 million and $50 million for the fourth quarter, ending Oct. 31.

"We're reducing expenses overall, and we are also freeing up dollars to spend on key marketing and development initiatives that are part of our strategic focus," Eric Schmidt, chief executive of Novell, said in the statement.

The company expects total quarterly savings from the restructuring to be approximately $45 million, but also foresees increased spending on Net services and related initiatives offsetting about $20 million of the initial savings.

Analysts said the company has had problems cutting loose from its roots as an operating systems company to become a provider of Internet infrastructure software.

 

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