Less than a year ago, shares of Novell traded near $45 per share. They've since fallen to the $8 per share range. Novell's revamped marketing efforts and network management focus have been at work for more than a quarter now, and investors will soon look for top-line results. While it's unlikely that shareholders will see significant gains in the near term, the company's new products target large markets and Novell could be ripe for a rebound.
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Internet software vendor Novell (Nasdaq: NOVL) said last Friday it was forming a new content networking company called Volera with telecommunications leader Nortel Networks (NYSE: NT) and consultant firm Accenture (formerly Andersen Consulting). The new company will sell caching products that help speed the delivery of Web content. Investors didn't seem to like the news, sending the shares down nearly 5% in response. The three companies will contribute more than $80 million in cash and consulting services for stakes in Volera, but Novell will be majority owner. Novell's board has already approved an initial public offering, but no such plans currently exist. Novell will also contribute the wealth of its Net Content Services Group: According to CFO Dennis Raney, that division was projected to collect roughly $30 million in sales in this fiscal year (ends Oct. 31). The birth of Volera comes after Novell's own efforts to achieve success in the content and caching market failed. Best known for its server operating system called NetWare, Novell has had little exposure to the caching market's target base: service providers. According to CEO Eric Schmidt, Novell was unsuccessful because it didn't have the necessary contacts or technological standing. Now it has Nortel's distribution and channel capabilities. Content and caching companies -- including Inktomi (Nasdaq: INKT), Akamai Technologies (Nasdaq: AKAM), CacheFlow (Nasdaq: CFLO), and Network Appliance (Nasdaq: NTAP) -- once traded at astronomical highs, but many have since been brought back to reality. Bandwidth usage continues to increase by the day, increasing the likelihood of network bottlenecks. The demand for quick delivery of multimedia content, for example, is huge, creating a significant market opportunity. Volera could eventually compete with all of the above companies. The announcement isn't a huge surprise. Shortly after reporting disappointing third-quarter results last August, Novell stated it was eliminating 16% of its workforce -- saving $25 million per quarter -- coupled with a restructuring charge of $40 million. Market watchers immediately asserted the reorganization signaled the company was preparing for a division spin-off. Money managers long on Novell salivated at the wealth propositions, but management quieted such talk at the time. If you've turned on your television lately, there's a good chance you've noticed Novell's $60 million-plus marketing campaign in the form of a 30-second television advertisement. The commercial hails the ability of Novell services software to solve the complexities of e-business by allowing intranets, extranets, and the Internet to work together on one platform. The spot ends with the tagline, "Novell: The Power to Change." Early last year, Novell traded near $45 per share, but shares have since fallen to the $8 per share range. Novell's revamped marketing efforts and network management focus have been at work for more than a quarter and investors will soon look for top-line results. While unlikely that shareholders will see significant gains in the near term -- the company is still tweaking internal operations and cutting costs -- its new products target large markets and Novell could be ripe for a rebound. Mike Trigg spends his days offering readers what Gordon Gekko called "the most valuable commodity": information. Mike's holdings can be viewed in his personal profile. The Motley Fool is investors writing for investors.
While the Volera news bodes well for Novell, significant challenges remain. Novell currently holds the number-three spot in the server operating system market behind Microsoft (Nasdaq: MSFT) and Linux-based offerings, but eventual success depends on its Net Services products. These products range from Internet security and caching to directory services and client management.
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