Novell's sales are short of estimate

Novell Inc., which sells networking software and computer-consulting services, reported a fourth-quarter profit of $23.7 million as restructuring costs declined. The shares fell as sales missed analysts' estimates.

Earnings were 6 cents a share, compared with a loss of $5 million, or 1 cent, a year earlier, Novell, based in Waltham, Mass., said Tuesday in a statement. Sales fell 15 percent to $244.9 million in the period ended Oct. 31.

Novell's sales dropped for the fourth quarter in a row as Linux revenue failed to offset falling sales from older products. Sales fell short of the $253 million estimate of James Gilman, an analyst at Cross Research/Soleil Securities in New York. Gilman also expected $14 million in Linux revenue, above the $13 million Novell reported.

"They underperformed across the board," said Gilman., who rates the shares "hold."

Novell, which has about one-third of its 5,200-person work force in Provo, said sales for fiscal 2007 will be $945 million to $975 million, short of the $1.01 billion average estimate of 13 analysts compiled by Bloomberg.

Shares of Novell, which have dropped 28 percent this year, fell 63 cents, or 10 percent, to $5.70 in trading after the report was released. They had risen 3 cents to close at $6.33 Tuesday on the Nasdaq Stock Market.

Novell will move research activities to "lower-cost areas" and switch to selling more products over the phone and Internet in a campaign to boost operating margins from 1 percent now to 5 to 7 percent at the end of 2007, said interim Chief Financial Officer Dana Russell in an interview. The company wants to end 2008 with an operating margin of 12 percent to 15 percent.

Russell declined to provide details on where jobs would be moved or how many could be cut. Novell may end up with about the same number of workers overall, even though some positions would be eliminated or moved, he said.

"There will have to be some significant expense reduction," Russell said in the interview. The changes will require an investment of $20 million to $25 million, he told analysts during a conference call.

To boost Linux sales, Novell last month reached an agreement with rival Microsoft Corp. to enable Novell's Suse Linux and Microsoft Windows to coexist on a single server computer.