Turmoil, Change and Novell

Its one thing after another for Novell, as the company announces a new president one day, and that its cutting staff the next, but what do its customers and analysts think of all this change?

The week started with a bang when Novell Inc. replaced longtime CEO, president and chairman of the board Jack Messman with Ron Hovsepian as president and chief operating officer.

The next day, Novell finally announced its long-expected layoffs.

The good news for employees is that instead of cutting 20 percent of its employees as had been expected, the Linux company only cut 10 percent of its employees. Novell also announced that it was looking into selling off its consulting division, Celerant.

All these moves were in lines with the demands of such stockholders as Blum Capital Partners LP and Credit Suisse First Boston.

Messman had been insisting that the company would make his self-imposed deadline of two years to turn itself around.

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While Novell had plenty of cash—about $1.6 billion—on its balance sheet at the third quarters end, its revenues have not met expectations.

Novell has tied its future success to Linux and identity. It became an instant Linux power in 2004, when it completed its acquisition of SuSE and its 15 percent of the enterprise Linux market.

Since then, though, its market share has stayed stagnant, while market leader Red Hat Inc. improved its position to more than 51 percent of the market, according to Netcraft, an IT analysis firm.

Hovsepian made it clear in his inaugural speech at the Open Source Business Conference that Linux remains the focus for Novell as it moves forward.

Click here to read more about Hovsepian taking the helm at Novell.

Analysts and customers had reactions and suggestions regarding Novells plans.

Evan Bauer, a partner at Fanzilli-Bauer Technology Partners and the retired CTO of Credit First Suisse Boston, said Novell needs to figure out the dichotomy between its two businesses: the new frontier of open source vs. the rest of its offerings.

"The future is open source and the things they acquired from SuSE and Ximian and the rest of the pieces," Bauer said. "And that business seems to have been ticking along very well indeed. Certainly the quality of product, [from] what weve seen in [financial] results, they have very happy customers for that. And their relationship with the open-source community is much better, much less strained than that of Red Hat with the community."

But what should Novell do with its other businesses? How open source ties in to the former NetWare business, for example, has been tough to figure out.

"Its obviously had an effect on their ongoing results," Bauer said.

Clearly, theres been a strain in making the transition happen, as Novell transforms into a smaller and more profitable company.

As far as the choice of Hovsepian goes, Bauer said it makes sense that Novell is looking at "an IBM guy."

"The answer is theyve gone to a sales and marketing guy," he said, "which makes sense. And the fact they looked inside rather than outside speaks well of where theyre going. Clearly theyre looking for change in focus, in leadership."

Dan Kusnetzky, IDCs vice president for system software research, agreed.

Hovsepian "appears to have a clear vision of what Novell needs to do and the ability to execute upon that vision if the organization will allow it."

"Hovsepian has an opportunity to reevaluate Novells solution portfolio, and if he does so successfully, he could achieve much-needed revenue goals and profit growth for the company," added Stacey Quandt, research director for the Aberdeen Group.

Gordon Haff, senior analyst for research house Illuminata Inc., also sees Hovsepians promotion as "largely kicking Messman out of a day-to-day operations role."

"Does it mean Messman is on the way out entirely? Well, that probably depends what sort of results we see in the coming quarters," said Haff.

"This move is consistent with the substance of Blums complaint—not so much one of fundamental strategy but with operational execution."

Given that, its a reasonable move to push Messman into more of a strategy role but not necessarily get rid of him," said Haff.

Additional reporting by Lisa Vaas.

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