November 27, 1996 1:00 PM ET
Good news for a change, but analysts still cautious on Novell
By Margaret Kane

  Stock in Novell Inc. edged up slightly this morning, one day after the company reported net earnings of $59 million in its fiscal fourth quarter.

The $59 million represented a slight increase from the previous year, but the Orem, Utah company also reported a 20 percent drop in sales- down more than $100 million-compared to the same period a year ago. Although officials sought to make a comparison with the third quarter, investor reaction remained muted.

"They said half the decline was from discontinued product lines, but that means the other $50 million is coming from continuing operations," said Jean Orr, senior technology analyst at A.G. Edwards, in St. Louis, Mo. "When you look at it, a $50 million loss year-over-year is still fairly significant."

Still, Orr said she anticipated results for fiscal 1997 improving from the previous year.

"We'll be back to about what we saw for fiscal 1995. So there should be progress from current levels," she said.

In the quarter, Novell earned $59 million, or 17 cents per share, for the quarter ended Oct. 26 on sales of $383 million. During the year-earlier period, Novell earned $58.9 million, or 16 cents per share, on sales of $480 million. Those figures included revenue from the WordPerfect suite, which the company subsequently sold to Corel Corp.

For the full fiscal year, the company earned 35 cents per share on sales of $1.4 billion compared with 90 cents per share and $2 billion in fiscal 1995. The year-earlier results included revenue from lines of business that were sold off by Novell.

Despite the question marks still surrounding Novell-which has suffered through a string of disappointing quarters-analysts were pleased that the company posted an increase in net income.

"The quarter demonstrated Novell's renewed sense of urgency and good cost control," Chuck Phillips, an analyst at Morgan Stanley, in New York, said in a report issued to clients this morning.

But Phillips, who kept the stock at a neutral rating, cautioned that Novell has not yet proven its strength in channel sell-through.

"We remain neutral on the stock since the question on channel sell-through remains open simply because of timing," he said. "Investors are likely to remain cautious on the stock until the company produces more evidence of sustained sell-through in the channel."

Analysts said Novell's future will be tied to the success of its new leadership. In August, Joe Marengi took over as president following the resignation of former president and chief executive Robert Frankenberg. (Novell is still searching for a replacement CEO.) Marengi then formed a cross-functional management team, consisting of several executive and senior vice presidents.

Orr said Merengi has "definitely gotten some movement going, which was needed at that company."

Novell's stock was up 13 cents to $11 in early morning trading.

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