Struggling Novell to cut 16 per cent of workers

Novell Inc. recently announced that 16 per cent of its 5,500 employees are being laid off in a cost-cutting move as executives at the struggling company continue to look for a solution to its worsening financial situation.

The Provo, Utah-based networking software vendor said it plans to eliminate a total of about 900 employees from its global workforce. The job cuts are aimed at realigning “expenses with revenues so we can show profitability,” said Steve Adams, senior worldwide marketing vice-president at Novell. “We believe this will enable us to do that.”

The layoff announcement came three weeks after the company reported fiscal third-quarter financial results that were significantly below levels of a year earlier. At that time, Eric Schmidt, Novell’s chairman and CEO, said the company would “take additional action to ensure our expenses are in line with revenue” during the current quarter.

Novell also said it will write off some unidentified assets and take a pretax charge of between US$40 million to US$50 million this quarter to pay for the restructuring actions. The company added that it expects to save US$25 million per quarter through the layoffs and other adjustments, beginning in the first fiscal quarter of 2001.

The total quarterly savings from the restructuring should amount to US$45 million, but about US$20 million of that will be offset by increased spending on the company’s new Internet services strategy. The layoffs follow an earlier reorganization announced during the summer, in which Novell set four new business units to manage different Internet services initiatives.

In a statement, Schmidt noted that the layoffs “are intended to improve [Novell’s] business in 2001” by lowering the company’s costs. “We’re reducing expenses overall, and we are freeing up dollars to spend on key sales, marketing and development initiatives that are part of our strategic focus,” he said.

But Dan Kusnetzky, an analyst at International Data Corp. in Framingham, Mass., said the timing of Novell’s layoff announcement “couldn’t be worse.” Rival Microsoft Corp. is in the process of celebrating its 25th anniversary, “and Novell has given them a gift,” Kusnetzky said.

The bigger problem, Kusnetzky added, is that he’s not sure the layoffs will be enough to make Novell’s financial problems go away. He noted that the company’s market share has been declining since 1997, when Novell had 29 per cent of the market for server operating systems. Last year, according to IDC’s research, that figure was down to 19 per cent.

“They’ve got some products that are technically very good but have been marketed badly,” Kusnetzky said.

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