Open Sources | Rodrigues & Urlocker » Private equity should buy out Novell

May 30, 2007 | Comments: (0)

Private equity should buy out Novell

TAGS: Random

Ah, Novell. I IM'd this morning with one of your faithful - someone I respect a great deal - and he reminded me of all that Novell does well (fight SCO, put out a great Linux product, both server and desktop, etc.). But what Novell has been lacking is the business side of this "goodness," as Forbes reports:

Don't hate Novell because of its partnership with Microsoft. Hate Novell because its business stinks....

Unfortunately for Novell, business isn't good. Analysts expect the company's second-quarter earnings will come in around $4.7 million on Wednesday--that's a drop of of 50%. Worse yet, sales are set to slide to $235.1 million from $278.3 million. As a result, over the past year Novell's shares have plodded along, dropping from $7.82 to $7.55.

The problem? For the past 10 years, booming sales of cheap software from Microsoft and open-source software vendors have sapped sales of Novell's venerable NetWare offering. Novell tried to adapt, first by repositioning itself as a vendor of open-source software with a string of acquisitions in 2003. Then it ticked off many of its newfound friends by announcing a deal with open-source foe Microsoft last November. One of Novell's open-source developers even resigned over the arrangement.

What Novell needs is to be taken off the public market so that it can regroup and make difficult decisions that Wall Street doesn't have the patience to permit. The company has over $1.8B on its balance sheet with a market cap of $2.5B. So, for $700M or so you can pick up a company with some valuable assets: technology, great engineers, and some exceptional processes around support, certification, etc. Sell off or open source all the stuff that keeps Novell mired in its past (ZEN, GroupWise, etc.) and start afresh. Or fresher. And dump the Microsoft pact while you're at it. There are good ways to work with Microsoft and bad ways. You chose the latter.

But there's redemption in sight. I think, however, that it will be too hard to effectuate the necessary changes without getting off the quarterly Wall Street treadmill.

Posted by Matt Asay on May 30, 2007 09:47 AM

RATE THIS ARTICLE: