By CBR Deputy Editor Matthew Aslett (Jason Stamper is on vacation)
Financial analyst house Credit Suisse First Boston this week took a swipe at Linux and identity management vendor Novell, calling for the company’s board to make major changes if it is to make the most of its investment in open source.
Analyst critiques of company strategy are not unusual but CSFB analyst Jason Maynard’s message to Novell’s leadership was particularly savage. "Novell has the necessary resources to be a much more profitable enterprise but it currently lacks the vision, strategy, and execution to produce respectable returns," he wrote.
Maynard went on to suggest that the company focus on software services rather than consulting, increase its emphasis on open source software, repurchase company stock, and bring in new management.
That the company is in the midst of some transitional problems is undeniable. Novell’s CEO, Jack Messman, admitted as much as he revealed disappointing results for the company’s most recent third quarter, with revenue of $290m, down 5% from the prior year’s quarter. New software license sales were $45.6m, down 20%, and maintenance and services sales came to $244.6m, down 1.2%.
"Novell continues to be a company in transition," explained Messman, adding that the "complex transformations" that Novell was undertaking in its product lines as well as in its sales force, reseller channel, and ISV partnerships were making things tough for the company.
What appears to be frustrating for CSFB, which is a minority Novell shareholder, is the length of time the transition is taking. When Novell acquired SUSE, as well as Ximian, the talk was of rejuvenation: "Novell, back from the dead", noted Merrill Lynch at the time.
While Novell’s NetWare business had been in decline for some time, it possessed the operating system and system software skills and resources to drive growth for SUSE that could increase Linux’s challenge to Microsoft.
Novell’s progress since then has been slow however, and it is yet to pose a major challenge to Linux rival Red Hat, let alone Microsoft. Linux subscription levels have been disappointing for the company in recent quarters, although 28,000 in the third quarter was an improvement on 19,000 in the second quarter, and 21,000 in both the first quarter and fourth quarter of 2004.
In comparison, Red Hat announced 190,000 new and renewed Red Hat subscriptions in its recently completed first quarter, up from 175,000 in the forth quarter, driving a sizeable revenue lead over Novell that Red Hat CEO, Matthew Szulik, was eager to put into perspective.
"We estimate that our international enterprise subscription revenue was more than twice the entire worldwide subscription revenue of our closest Linux competitor," he said during Red Hat’s fourth quarter conference call. "In fact, our subscription revenue from EMEA alone was larger than the reported worldwide subscription revenue of the same number two Linux provider," he added.
So does Novell have a management problem? It has certainly lost some high profile people. Chief technology officer, Alan Nugent, left for CA in March, following Chris Stone, former vice chairman of the office of the chief executive, who left Novell in November 2004. Former SUSE CEO, Richard Seibt, left in May.
The latter move coincided with the appointment of Ron Hovsepian, who had been president of Novell’s North American unit, as executive vice president of the company. Hovsepian, who is widely expected to eventually take the reins of Novell from Messman, was given full charge of all the presidents in charge of Novell’s operating units.
Messman, in making the announcement of Hovsepian’s appointment, said that Hovsepian had demonstrated the ability to streamline Novell’s operations, deliver solid financial results, and stay focused on the customer: just the kind of actions Novell needs to be demonstrating if the likes of CSFB are to be placated.