Novell Posts Disappointing Results

BOSTON - Business software maker Novell posted disappointing quarterly results due to weak sales of older products and said it expected to take restructuring charges in 2007.

While Novell reported a preliminary fiscal fourth-quarter profit, bouncing from a year-ago loss, revenue fell 15% to $244.9 million, short of the average Wall Street forecast of
$251.5 million, according to Reuters Estimates.

"Overall these are disappointing results," said Jefferies analyst Katherine Egbert, citing the lower-than-expected quarterly sales figure and Novell's 2007 sales outlook.

Novell had warned investors in August that its quarterly earnings would miss analysts' forecasts, blaming weakening sales of older products, as well as plans to boost spending on
product development and make changes to its sales force.

A longtime competitor of Microsoft , Novell rose to prominence in the 1980s when it introduced one of the first networking systems that connected personal computers.

But sales of those products dried up and Novell has sought to reinvent itself in recent years by focusing on the open-source Linux operating system and identity-management products that help control access to secure data.

Novell said fourth-quarter net income available to common stockholders was $23.7 million, or six cents a share, compared with a loss of $5.0 million, or one cent a share, a year earlier
when it took a $38 million restructuring charge.

For the year ended Oct. 31, revenue fell to $967 million from $1.04 billion in the previous year, Novell said.


It forecast fiscal 2007 revenue at between $945 million and $975 million. The range was lower than analysts' projections of $949 million to $1.05 billion, with the average at $1 billion,
according to Reuters Estimates.

The company said it will take restructuring charges this fiscal year as it looks to end the revenue slide and increase profitability. But executives would not discuss the size of the
charges during a conference call with analysts.

Novell has already taken some $150 million in restructuring charges over the past five years. Chief Executive Ron Hovsepian said those efforts have failed to realize their full potential
in boosting profitability.

The company also said it expects to incur an extra $20 million to $25 million in costs this year as it changes the structure of its sales organization and moves some research and
development to countries with low labor costs.

Analysts said they were concerned that Novell is boosting spending at a time when sales are falling.

"I think it's hard for investors to give you credit upfront," Banc of America Securities analyst Kirk Materne told Hovsepian during the conference call. Hovsepian, a 17-year veteran of IBM, was named CEO in June.

Novell Chief Financial Officer Dana Russell said he expects to book about $20 million in 2007 revenue from a sales partnership that Novell set up with Microsoft. The two companies have teamed up to sell Novell Linux software and technical support, competing with Red Hat and
Oracle, which entered that market in October.

The company said the fourth-quarter results were preliminary because it is conducting a review of its past stock options practices, which could lead to accounting adjustments.