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Novell to Restructure Around Linux, Identity

Novell plans to cut roughly 600 jobs and focus on its core businesses, Linux and identity, to drive company growth, executives announced Wednesday.

The restructuring is expected to save the company more than $110 million in annual run-rate expenses, officials said, resulting in a restructuring charge of $30 million to $50 million in the fourth quarter, which ended Monday.

"This cost restructuring initiative is part of the comprehensive transformation of Novell's business that the management team has been designing and implementing over the past year," Jack Messman, Novell chairman and CEO, said in a statement. "While it is a difficult decision to eliminate positions in our talented and dedicated workforce, this move is necessary to ensure that our costs are more closely aligned with our business strategy."

While the announcement paints a picture in broad strokes about what the company is going to do, the announcement was short on details. Officials said more information would be forthcoming in its fourth-quarter earnings report.

Joseph Tibbetts, Novell senior vice president and chief financial officer, said in a statement that the restructuring allows Novell to focus its marketing efforts, reduce product development expenses and consolidate its worldwide operations around the key growth opportunities of Linux and identity.

"While the cost reductions will result in some lost revenue opportunities, the net result is expected to be improved profitability as we enter fiscal year 2006," he stated.

That leaves a wide range of Novell products and services on the chopping block. The only firm commitment announced today was the company's board of directors statement that it authorized financial adviser Citigroup to explore "strategic alternatives" for Celerant, Novell's consulting subsidiary.

Stacey Quandt, an analyst at research firm Aberdeen Group, said the announcement raises more questions than it answers. For example, she said, the company has recently been working on integrating parts of its IT management ZENworks suite with its identity product line; will that work continue now?

"They've created even more uncertainly about what business units are going to be de-emphasized and what parts are going to be spun out," she said. "They announced 600 people [terminated], but where are those people coming from, are they coming from research and development?"

Turmoil has been almost a mainstay at the Waltham, Mass., software company the past year, and the company's new focus on Linux as one of its key growth opportunities is somewhat perplexing.

Chris Stone, former vice chairman of the office of the CEO and the champion behind Novell's purchase of German-based Linux distribution SUSE, resigned abruptly in November 2004. In March 2005, Novell CTO Alan Nugent resigned from the company as well, to take a job at Computer Associates .

Richard Seibt, who came to Novell during the SUSE acquisition to integrate the Linux operating system with the Novell product line and head the Europe, Middle East and Africa operations, resigned in May. He was replaced by Ron Hovsepian, president of worldwide field operations, who was promoted to president and COO on Tuesday.