Excluding the write-down, the company posted a loss of $0.03 per share for its second fiscal quarter 2001.
Today’s announcement reflects fall-out from the Internet sector, as well as the continued decline in enterprise IT spending. Also, transition issues in our move to solution selling inhibited the company’s performance, said Novell(R) chairman and chief executive officer, Eric Schmidt. We plan to return to profitability by the end of fiscal 2001 through job reductions, and additional savings in the areas of travel, advertising and recruiting costs.
Despite our disappointing overall performance, there is increasing evidence that Net services based on scalable directories will provide the strategic foundation for IT solutions over the next several years. By early 2002, we intend to complete Novell’s move to selling Web-based solutions and return to overall revenue growth.
The write-down of impaired equity investments in Novell’s investment portfolio relates to what the company believes are other than temporary declines in market value of these investments. These investments include a $100 million investment in marchFIRST, as well as $42 million for other equity investments in both public and non-public Internet companies.
The results for the second fiscal quarter compare to revenue of $302 million, and diluted earnings per share of $0.09 in the same period a year ago. In the second fiscal quarter of last year, the company’s results included a one-time $35 million royalty payment which contributed $0.07 per share to earnings.
For the first six months of fiscal 2001, Novell reported revenue of $486 million and a net loss of $159 million, or $0.50 per share. Excluding the write-down and the accounting change in the first quarter, the net loss for the first six months of 2001 was $6 million, or $0.02 per share. In fiscal 2000, the company reported revenue of $618 million and net income of $76 million or $0.22 per share.
Review of Q2 Performance
In Novell’s second fiscal quarter, the company’s large network site-license business was up sequentially from the first quarter by five percent to $173 million, or 72 percent of total revenue. Novell’s traditional packaged software license sales for smaller networks continued its decline, down from the first quarter by 25 percent, to $35 million, or 14 percent of total Novell revenue.
Sequentially, total revenue in the second fiscal quarter of 2001 declined two percent from the first quarter of fiscal 2001.
>>> Revenue by product category: Net Management Services revenue declined three percent sequentially from the first fiscal quarter to $181 million in the second fiscal quarter. Net Directory Services revenue was $8 million, flat with the first fiscal quarter 2001. Net Content Services, which represents revenue from Volera, Inc., the new Novell subsidiary company, was also flat at $2 million in the second fiscal quarter. Customer service, education and consulting revenue was $50 million, up three percent sequentially from the first fiscal quarter 2001.
>>> Revenue by geography: During the second fiscal quarter 2001 revenue in the United States declined four percent from the first quarter of fiscal 2001, to $133 million. Revenue in other regions was up slightly from the first to second fiscal quarter. In the Europe, Middle East and Africa region, revenue was $71 million, Asia Pacific revenue was $21 million and revenue from Canada and the Americas was $16 million.
>>> Expenses: Operating expenses were up $4 million to $197 million. The increase was accounted for by the timing of normal wage increases, and separation and funding costs associated with the creation of Volera as a new majority-owned subsidiary operating company of Novell.
>>> Other income (loss), net contributed a loss of $132 million, due to the write-down of investments and a decline in interest income. In the first fiscal quarter of 2001, Novell reported $18 million in other income.
On the balance sheet, cash and short term investments were $639 million at the end of the second quarter, compared with $698 million at the October 2000 fiscal year-end. Cash flow from operations for the quarter was a negative $2 million largely due to the company’s loss. Novell was precluded from repurchasing shares of its stock during the quarter because of the pending acquisition of Cambridge Technology Partners.
Business Outlook
The company expects to return to profitability through planned job reductions, and additional savings in the areas of travel, advertising and recruiting costs. Before the end of May, the company plans a job reduction of approximately five percent from within its worldwide workforce of 5,200 full-time and contract employees.
Novell is on track for completing its acquisition of Cambridge Technology Partners during Novell’s third fiscal quarter. Integration planning is underway within and between both companies. Cambridge will bring an eSolutions oriented talent and knowledge base to Novell. Novell intends to enhance its ability to support sales of Web-based solutions by other IT services organizations and systems integration partners, as well as, through its own sales organization.
