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Staff cuts and accelerated spin-out for Novell

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Novell is axing 600 staff and accelerating plans to spin out its consulting business in an attempt to cut costs and return to growth.

The company said Wednesday it is cutting more than 10 per cent of positions while focusing on Linux, open source, identity and resource management in a restructuring geared towards cutting $110m from Novell's operating costs.

Novell's board has also authorized Citigoup Corporate and Investment Banking to "explore strategic alternatives" for Novell's Celerent consulting subsidiary.

Celerant is a $150m annual business consulting unit perhaps best known as Cambridge Technology Partners, the company that Novell acquired in 2001 and was headed by Novell's current chief executive Jack Messman. Messman took over as Novell CEO from Eric Schmidt.

Novell already planned to spinout Celerant, but only when market and "other" considerations were appropriate. The decision by Novell's board of directors' to hand due diligence to Wall St demonstrates frustration with the existing course of action and a decision to speed-up the search for alternatives.

Restructuring and spinout follow an unexpectedly disastrous third quarter for Novell. Revenue dropped five per cent to $290m while net income plunged 90 per cent to $2.1m for the three months to August.

Dissatisfaction has reportedly been growing with Messman's management style and ability to advance SuSE Linux since acquisition in 2003. Novell this week prompoted Ron Hovsepian to serve as Messman's peer as president and chief operating officer in charge of worldwide product development, marketing and sales.

Messman called restructuring a "decisive, yet disciplined, cost reduction action that balances the need to be fiscally prudent with the need to continually seek growth opportunities and generate long-term profitability in a highly competitive marketplace."

Novell expects to record a restructuring charge of between $30m and $35m during the fourth quarter that ended on October 31. The full effect of restructuring will be realized during the first quarter that ends on January 1, 2006. Novel did not say how much it expects the total charge to be.®

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