Novell is expected to layoff as much as 20 percent of its workforce as part of a massive cost cutting measure to placate Wall Street.
Sources familiar with the company's plans said roughly half of the cuts -- 10 percent -- will come from Novell's operations in Provo, Utah and Waltham, Mass. The other 10 percent will impact Novell's European division, including SUSE Linux operations in Nuremberg, Germany. Novell's North American sales force will not be affected.
"The cuts will be deep across the board, as much as 20 percent," said one source close to the company who preferred to remain anonymous. "SUSE is being decimated, and layoffs will include SUSE developers."
As the company's fiscal year end approaches on Oct. 31, employees and observers await an official announcement. Sources expect more than 1,000 of the company's 5,800 employees will be fired. Novell would not confirm that information.
A Novell spokesman acknowledged that the company promised to make significant cost cuts but would not comment on possible layoffs.
At least one partner fears the tarnish from Novell's layoffs will rub off on the channel. " Layoffs will impact Novell's partners, especially when it comes to winning customers," said the partner, who asked not to be identified. "It is killing our image with the customer. These layoffs pretty much spell out to the customer that there's a problem in paradise."
Sources said Novell is eyeing cuts from acquisitions acquired as part of its Linux push, including Ximian and SUSE.
Another source, who declined to be named, said senior consultants will be let go as Novell consolidates its consulting divisions in Europe. "Europe will take the biggest hit," said the source. "They will consolidate Cambridge and Novell Consulting in Europe."
For its third quarter results posted in August Novell reported a 5 percent drop in revenue to $290 million and profit loss of 91 percent to $2.1 million.
Following that earnings report, Novell investor Credit Suisse First Boston issued harsh criticism about Novell's performance and advised the board to fire the establishment and bring in "fresh" leadership, exit the "low margin" consulting business and expand its open source and Linux businesses.
"With so much untapped opportunity surrounding Linux and open source, we believe that a major overhaul is required. Novell has the necessary resources to be a much more profitable enterprise, but it currently lacks the vision, strategy, and execution to produce respectable returns, according to the CSFB report.
A week later Blum Capital Partner publicly urged the software company to cut expenses, sell off various divisions and emphasize its Linux agenda. Blum owns 5 percent of Novell.
In spite of those admonishments, others in the financial community and channel said a significant amount of Novell revenue comes from maintenance and support for NetWare customers who may not be interested in migrating to Linux.
"Does Wall Street want [Novell CEO Jack] Messman to drop this business and the revenue and cash flow that comes with it? Orderly transitions take time, and are never fast enough for the analysts," said one channel observer close to Novell. "These customers and Novell's sales force aren't interested in pushing the open source agenda.
Novell could accelerate the transition by going private, selling the NetWare business and rebuilding around open source, but that might require a new management team," he added.
One financial analyst noted that Novell's Linux business still represents a "tiny, tiny, tiny" share of Novell's revenue and it won't grow unless the company endorses a single platform.
"Novell started well behind Red Hat and they really haven't made the switch yet, they're still pushing a NetWare agenda with it," said Drew Brousseau, a financial analyst at SG Cowen Securities, Boston. "They're promoting it as a platform on which to run NetWare services and not Linux per se. They come at it with a lot more constraints [than Red Hat]."
He added that Novell must cut cost.
Novell channel partners said they are steering their customers to Linux but agree the transition will take more time than Wall Street expects.
"There's not an overwhelming rush of customers moving that way but there are more and more every month," said Paul Anderson, CEO of Novacoast. "I'm firmly convinced that this trend will continue so I'm ramping up our internal Linux resources as fast as I can -- both by retraining existing employees and hiring new ones with more of a Linux background."