Bill-o-phobia. It's a pronounced obsession with Microsoft Corp. and its chairman, William H. Gates III, that plagues the personal-computer software industry. Its most conspicuous victim: Novell Inc.

On Mar. 21, Novell launched a broadside attack on Microsoft, agreeing to acquire WordPerfect Corp. and a spreadsheet from Borland International Inc. in deals together worth $1.4 billion. Overnight, Novell will become the industry's second-largest PC software applications company (chart), with considerable bulk and technological clout to battle its still much bigger rival. "Without question," says Novell CEO Raymond J. Noorda, "our major competition is Microsoft."

"PRETTY NUTTY MOVE." The question is, does Noorda's deal make sense? "It's a pretty nutty move," says Frank A. Ingari, president of rival Shiva Corp. Indeed, a day after Novell announced the merger, its stock plunged 16%, or 33 4, to 20. Analysts are concerned that the company is weighing itself down with unwieldy acquisitions in an effort to mirror Microsoft's diversity, rather than concentrating on its core networking products. Wall Street, says Goldman, Sachs & Co.'s Rick G. Sherlund, is "worried they may have grabbed the anchor

and might go down with the ship."

Certainly, Novell has reason to fear Microsoft. The newest operating system from Gates's monolith, called Windows NT, adds networking features that could eliminate the need for Novell's NetWare, which up to now has dominated the exploding market to link PCs together. "Novell recognizes its [NetWare] revenues are fragile at best," says A. Peter Hamilton, president of Novell rival Banyan Systems Inc.

That competitive quandary is fueling the longstanding bitterness that took root in 1991, after the second of two failed merger attempts between Microsoft and Novell. Novell later provided reams of data to the Federal Trade Commission and the Justice Dept. in their investigations of Microsoft. In an interview last year, Noorda made plain his distaste for his rival. "We pride ourselves on having a lot of integrity in the way we conduct business," he said. "It's just a different mentality when we deal with [Microsoft]. They are snakes to deal with."

But some observers say Novell takes the rivalry to foolish extremes. Already, it has made two ineffective acquisitions in an attempt to keep up with Microsoft. It spent $80 million in 1991 on Digital Research Inc., maker of an operating system that competes with Microsoft's widely used MS-DOS, then paid $350 million in stock in 1992 for AT&T's Unix Systems Laboratories, which produces operating systems for larger computers.

Today, sales of the Digital Research product, DR-DOS, account for just a tiny portion of the operating systems market, and Novell has failed to unify the computer industry around its Unix. On Mar. 17, Sun Microsystems Inc. bought a permanent Unix license from Novell for just $83 million--getting essentially the same access to the software for which Novell paid $350 million.

SWISS STAKE. With the WordPerfect/Borland deal, Noorda wants to build a company whose strength will lie in selling applications that work well on PC networks. But that approach is rife with problems. By entering the applications business, Novell will compromise its position as the neutral "Switzerland" of the industry. It is now competing with the applications companies it wants to adopt its networking standards.

And Novell must integrate all its acquisitions. It must revive profitability of the spreadsheet, Quattro Pro, which Borland had discounted by 50% in the past year, to $49. WordPerfect has been weakened, too: While its revenues rose some 20% last year, to $700 million, analysts believe profits have been flat. Lotus Development Corp. says it, too, had discussed acquiring the company.

Meanwhile, the latest version of NetWare has been selling poorly. That's what concerns analysts most, since in 1993 NetWare accounted for 75% of Novell's revenues. Most observers think Novell should concentrate on improving NetWare's features.

It's not clear, moreover, who will lead the expanded Novell. CEO Noorda, nearing the self-imposed deadline of his 70th birthday, still has not found a successor. And he may be too consumed by Bill-o-phobia to work on that problem.

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