When the company announced disappointing third-quarter results in August, its CFO, Joe Tibbetts, also announced plans for the layoffs during the company’s current fourth quarter, which ends October 31, 2005.

Reports now indicate that the number of employees laid off could be as many as 1,160, added to the 120 to 150 positions eliminated in Europe during the third quarter when Novell saw net income dip to $2 million from $23.9 million, as revenue fell to $290 million from $304.6 million in the third quarter of 2004.

Novell has found itself under pressure from minority investors in recent months to prove that it can take advantage of the opportunities that its acquisitions of SUSE Linux and Ximian presented it with.

Strong criticism, first from Credit Suisse First Boston analyst Jason Maynard, and then investor Blum Capital Partners, has increased the pressure on Novell’s management to make major changes, such as cutting costs by targeting Novell’s two corporate jets, its overstaffed R&D department, legacy products, and its 400 or so NetWare engineers, as well as selling non-core businesses.

The company has already responded to investor calls to repurchase shares, announcing plans at the end of September to repurchase up to $200 million of Novell common stock over the next 12 months, and investors and analysts will be watching closely to see how the new layoffs are shared round the company’s business.

Novell’s management has been quick to admit that it is a company in transition following its move into the Linux operating system business. In August, chairman and CEO Jack Messman admitted that the complex transformations 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.

In particular, it has struggled to move from a predominantly maintenance-focused sales model for its NetWare, and GroupWise products to one that chases new project opportunities with desktop and server Linux.

This has not been any easy task, especially since it took the company well over a year to refocus its sales staff in North America, and that process in Europe is still not complete. Europe has been particularly problematic for Novell in recent quarters, prompting the region to become the focus of president of worldwide field operations Ron Hovsepian.

As well as the previously announced staff reductions in Europe, action has already been taken to sort out Europe at a senior level, with the company appointing Thomas Francese as its new president for EMEA in October.

The question is, where next for cost cutting at Novell? As well as legacy sales positions, clearly the R&D department should be a focus, according to Blum Capital, and this is an area that might be ripe for change to reflect the open source business model that Novell is embracing.

The company has already opened up the development of its SUSE Linux Professional operating system via the openSUSE project, while its new Hula collaboration server project is also open source.

An open source development model does not mean no R&D costs – particularly as open source vendors employ many of the brightest minds in open source development – but it does mean a more flexible and open approach to R&D and more reliance on external resources for porting, testing, and even some core coding.

Another area Novell’s management has been encouraged to look at is spin-offs, rather than layoffs. Blum Capital has estimated that Novell could generate $175 million through its Celerant Consulting affiliate, $150 million through the ZENworks systems management business (including Tally Systems Corp, acquired in March for an undisclosed fee), $100 million via GroupWise, and $75 million via its Cambridge Technology Partners consulting and systems integration business.

Whether Novell would see all those businesses as non-core is open to question, but in a letter to Blum Capital in June, Novell admitted that it expects to separate Celerant when market conditions are appropriate.

It remains to be seen whether Novell’s new layoffs will satisfy investors and analysts. If not, the company could find that questions over performance begin to focus higher up the organization than its sales and R&D staff.