Novell takes an axe to itself

Posted on 3 Nov 2005 at 17:32

Novell is to put in place a major restructuring initiative which it claims will save it in excess of $110m, but which also includes a cull of more than 10 per cent of its workforce.

The announcement comes on the back of a pair of weak quarters and mounting pressure from investors to make good on its Linux strategy with profits down to $2.1m in its most recent quarter.

SEC filings revealed that investors Blum Capital Partners, L.P. had already voiced concerns over the direction of the company in September, and urged chairman Jack Messman to 'reduce costs to an appropriate level necessary to operate all of its businesses profitability; ... divest non-core businesses; ... become a leader in Linux and identity management through joint ventures and selective acquisitions; and optimize its capital structure to maximize shareholder value.'

It claimed such restructuring could save more than $200m a year, giving it the financial legroom to make acquisitions focussed on its Linux strategy.

Chris Papayianni, Area General Manager for Novell told us that the company has been responding to investor opinion and working hard to 'deliver value to our shareholders'.

He said the majority of the 600 or so job cuts would be in general and administrative areas, but that there would also be cuts affecting Novell's 'product-related functions'. He added that this would see Novell 'end-of-lifing certain things' although which products this would affect had not yet been revealed.

The restructuring will allow Novell to focus its operations on key growth markets: Linux and identity management. Papayianni confirmed that 'No, we are not in any significant way affecting our SUSE operations' - the Linux platform it picked up at the end of 2003.

He said that the extra cash that the restructuring frees up will put the company in a better position to pursue these goals, which would see a focus on its field sales operations and the possibility of further acquisitions. 'It's one of the things we should be and are doing,' he said.

Novell is also looking into spinning off its Celerant consultancy division, although it says it will wait until market conditions are favourable.

Novell expects to incur a charge between $30m and $35m for the restructuring, to be included in its fourth fiscal quarter ending 31 October. It will also update its guidance in its fourth quarter results.

Shares in Novell were up 5 cents at $7.52 from yesterday's close at the time of writing.

Author: Matt Whipp