Microsoft May Sound `The Death Knell For Novell'Amy Cortese
Novell Inc. was certainly in the right place at the right time. Just as corporations began tying personal computers into networks in the 1980s, Novell came out with NetWare, software that let PCs share files, programs, and printers. NetWare became a standard that neither IBM nor Microsoft could dislodge. And the company was poised to ride the growth wave of the 1990s: the move to bigger, more complex networks, including the Internet.
Instead, Novell is behind the eight ball. Sales of its WordPerfect programs--recently sold to Canada's Corel Corp.--have cratered. Growth in the core business has slowed, too. In the quarter ended Jan. 27, sales slumped 11%, to $438 million, and Novell has warned that, with the WordPerfect sale and a shift to direct sales of NetWare, revenues could drop by $225 million this quarter, producing a modest loss. Novell shares have skidded from a high of 35 in 1993 to an all-time low of 11 7/8.
One reason for the reversal of fortunes: Microsoft's Windows NT. While NetWare has been upgraded, it is still limited mainly to sharing files and printers across a network. Today, such simple networking is growing a modest 12% a year. But there's surging demand for what NT does: running database programs and applications for accounting or manufacturing, for example. That has attracted some 400,000 server customers to NT--many of whom would have chosen NetWare in the past. Now, Microsoft is getting more aggressive, giving away software to turn NT systems into servers for the World Wide Web. "That's the death knell for Novell," says analyst Paul D. Callahan of Forrester Research Inc.
NEW FOCUS. It may be too soon to write an epitaph. Novell retains a huge following--40 million PCs on 3 million networks. And Robert J. Frankenberg, who took over as CEO in 1994, has undone the diversifications of predecessor Raymond J. Noorda. In addition to unloading WordPerfect--for $750 million less than Noorda paid--he sold the Unix software unit for $70 million plus ongoing royalties.
Now, Novell is finally focused on networking. An improved version of NetWare, dubbed Green River, which adds transaction processing and enhanced security, is due this summer. And Novell is extending NetWare and groupware programs to work with the Web, adding support for Sun Microsystems Inc.'s Java language, and lining up new partners such as AT&T.
Novell's best hope may be in the next big network challenge: creating a universal method for keeping track of resources--users, passwords, E-mail addresses, PCs, and programs--on a corporate net or the Internet. NetWare has directory services, and Novell programmers are developing versions for other systems, including NT and Unix. Microsoft won't have similar services until next year. "He who controls the directory wins the next round," says Lee Doyle, an analyst with International Data Corp. And for Novell, there may not be many others.