The layoffs will take place by the end of October and cost $10 million to $12 million, primarily in severance costs, the company said in a filing Monday with the Securities and Exchange Commission. However, it will cut Novell's expenses by about $3 million to $4 million per quarter during a time when the Waltham, Mass.-based company is trying to return to profitability.
"This is a sign that Europe could be weak again," said Jefferies & Co. analyst Katherine Egbert, adding that part of the issue could be that a strengthening dollar has diminished the U.S. value of European revenue. Historically, about a third of Novell's revenue--roughly $100 million per quarter at present rates--comes from Europe, she said.
Ron Hovsepian,
VP, Novell
The layoffs are the result of a new phase of restructuring that began in the United States, Novell said. Ron Hovsepian, promoted in May to executive vice president of worldwide field operations, implemented that earlier phase and now is working on the European changes, said spokesman Bruce Lowry.
The restructuring in the United States was geared to improve customer contacts by establishing specific territory responsibilities and dedicated staff for larger customer accounts, Lowry said.
Novell sells server software for tasks such as management and e-mail. It sold an operating system called NetWare for years, but as that software waned, the company began emphasizing Linux with the $210 million acquisition of Suse Linux in 2004. The company has major global alliances with hardware and software powers, but it still lags behind leader Red Hat in the Linux market.
"They're in turnaround mode still," Egbert said. "What Wall Street is looking for is an uptick in the Linux business to offset the declines in NetWare. If they could stabilize NetWare or better, if NetWare declines have Linux make up for those quarter-to-quarter declines, that would be a reason to get excited. But Linux has been flat."
In its quarter ended April 30, Novell's revenue declined to $294 million from $297 million the year earlier. Using generally accepted accounting principles, its net loss deepened from $15 million to $16 million over the same period.
Novell plans to report financial results for its third fiscal quarter, which ended July 31, on Aug. 25.
