March 19, 2001, 1:20 PM — Beleaguered Novell heads into its annual BrainShare conference this week carrying a new leadership structure and a significant new acquisition that have customers and industry analysts questioning the wisdom of both.
The company last week announced that chairman and CEO Eric Schmidt -- once hailed as a savior -- would relinquish the CEO title and instead guide e-commerce and Internet undertakings as chief strategist. In conjunction with that move, Novell is acquiring e-business consulting company Cambridge Technology Partners, whose top executive Jack Messman has long served on Novell's board. He will succeed Schmidt as CEO.
Veteran Novell employees remember Messman -- not always fondly -- from his executive stint at Novell Data Systems and successor Novell in the early 1980s. Those who follow Novell closely are expressing skepticism about the $266 million acquisition, saying the union promises little synergy.
Also, sources say Schmidt wanted a graceful exit from day-to-day operations four years after being lured from Sun to transition Novell into the Internet age. Schmidt says it has been frustrating that he hasn't been able to communicate what he calls "the brilliance of [Novell's] Net Services strategy."
Analysts say the management change was necessary.
"Eric Schmidt is a visionary," says Steve Shepich, an equity analyst with H&R Block Financial Advisors. "He's definitely the guy you want to lead your strategic direction, but operationally he's dropped the ball and lost the opportunity to drive directory services when Microsoft was late with Windows 2000. Novell hasn't been able to sell its idea."
Until last year, things had been looking up for Novell and Schmidt. The company had launched its One Net Internet strategy, made a foray into e-commerce with its iChain product and reported 16 profitable quarters. Fortunes for Novell quickly nose-dived in 2000 when the company reported four dismal financial quarters and an annual net income of just $85.3 million, down $105 million from the year before. In the first quarter of 2001, Novell sustained a $7.7 million loss on sales of $245 million. Schmidt attributed the drop to a downturn in sales of Novell's packaged products.
Customers say Novell could still be successful if it receives the consulting help it needs in selling and integrating the company's newer Internet and e-commerce focused products.
The company has introduced several products in the past year that support its One Net strategy: NDS eDirectory, which operates on NetWare, Windows NT/2000, Solaris, OS 390, Linux and Tru64 Unix, as well as iChain, Novell Portal Services, OnDemand Services and eGuide. In One Net, users can access the network from a multitude of devices, irrespective of company LAN, Internet, extranet or intranet boundaries.