Novell falters as channel sales slump

Novell issued a profit warning for its second quarter last week, attributed to a fall in channel sales, the launch of Microsoft Windows 2000 and the popularity of the Linux operating system.

Karen Rollins, Computer Reseller News
12 May 2000

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Novell issued a profit warning for its second quarter last week, attributed to a fall in channel sales, the launch of Microsoft Windows 2000 and the popularity of the Linux operating system (OS).

The vendor revealed that turnover for its second quarter ended 30 April is expected to be about $300m (£195.1m), compared with turnover of $316m in the same period last year.

Novell's full financial results will be released on 23 May.

The vendor blamed part of the fall in channel sales on the fact that many of its partners were changing into application service providers (ASPs).

Novell admitted that it has been slow to move into this sector and has only now begun to invest in the ASP area. The company also admitted that slower sales into larger accounts reflected a lack of demand generation by Novell.

One Novell reseller, which asked to remain anonymous, said that he did not find the vendor's profit warning surprising.

The reseller claimed Novell was becoming a smaller part of the OS market and that, in the past 18 months, its role had "totally diminished".

"It is very difficult to see a clear future for Novell. It lost the plot with the release of Netware 4, and then it was a while before it could get the Novell Directory Services (NDS) right," said the reseller.

"In the Novell channel, we are not alone in having customers that are switching off Novell and moving to Microsoft."

The second-quarter profit warning came as the networking vendor had begun attempts to re-invent itself around NDS and a net services software strategy.

Dennis Raney, chief financial officer at Novell, said that the company was in the process of realigning its sales and marketing efforts to push Internet-based networking services. But he added that this transition would not be completed until the end of the year.

"We need to accelerate our transformation to this strategy by enhancing overall sales execution, increasing our support of existing and emerging channels, and more aggressively broadening market awareness," he said.

Channel inventories of Novell products were reduced by more than 40 per cent in the second quarter to be worth less than $30m, in an effort to reflect lower demand and to increase inventory efficiency.