Finding a bloated management structure, an overstuffed channel and overstaffed departments, CEO Eric Schmidt has decided to take it on the chin, axing 1,000 jobs at Novell Inc, including 30% of management, and emptying the channel in the face of reporting an operating loss next quarter. After announcing job cuts in Europe last week, Novell on Wednesday painted a bigger and more grim picture of its current financial state. The Provo, Utah company reported a second-quarter net loss of $21.6m and said it expects to post an operating loss for a third quarter which will include charges of $25m-$35m stemming from the planned layoff of 18% of its roughly 5,800 employees, leaving around 4,800. Wall Street was shocked, anticipating a profit of $0.03 per share, instead of the actual $0.04 loss. Second-quarter revenue plummeted 27% and more than $100m from last quarter, to $273.1m. The massive decline was blamed on poor sales of boxed software and flagging OEM license revenues, which together account for 54% of total revenue. Sales in other areas remained essentially flat. The $82m plunge in channel revenue is a direct result of an intiative to bring inventory levels down to the lowest levels possible. Sales of IntranetWare stood at 200,000 units, bringing in $132m, substantially down from last quarter’s $185m. The company plans to continue its inventory reduction in the third quarter and expects to post an operating loss on revenue which is expected drop another $100m sequentially. The job cuts come as part of an effort to reduce expenses that Schmidt described as mostly personnel-related. As far as management is concerned, Schmidt says that 30% of Novell executives have been fired, quit or demoted since his arrival in early April. The hard streamlining process is underway, and analysts at Morgan Stanley have been told that there will be no more acquisitions until the company straightens out what it’s got already, but Novell is definitely not up for sale. One of Novell’s strengths is still its sizable cashpile. It stands at over $1bn, even after the company took a hit of $50m in its equity portfolio during the quarter, mostly due to the decline of shares in Corel Corp and The Santa Cruz Operation, in which it holds a 20% stake as part of the deal to sell Unixware. Looking ahead, Novell refused to speculate on the fourth quarter, which will see the launch of Network Directory Services for NT and Moab, the next cut of IntranetWare. Schmidt told Morgan Stanley that the timetable for a turnaround will be a minimum of two years, but would be no more specific. Wall Street was speculating an opening price this morning of around $6, but some doomsayers were anticipating a write-down to the book value of $4.81.
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