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Novell Taps New CEO, CFO to Lead the Linux Charge

Published: June 22, 2006

by Timothy Prickett Morgan

Commercial Linux distributor Novell made an abrupt announcement this morning, just before Wall Street opened for business, that Jack Messman, the company's chairman and chief executive officer, had been removed from those positions. Thomas Plaskett, who has been on the board of directors since November 2002, was elected non-executive chairman of the board at the company, which has chosen Ron Hovsepian, who was named president at Novell in November 2005, as its new CEO.

Messman, who is 66, will remain on the board of directors at Novell until October 31, but as of yesterday, he is no longer an employee at the company. Neither is Joseph Tibbetts, who is 53 and who was until yesterday Novell's chief financial officer.

Even before the tongues started to wag on Wall Street, Plaskett made sure to nip in the bud any suggestion that the dismissals were in any way relating to accounting or governance issues. "The changes are a result of the extensive deliberations of the board concerning the acceleration of Novell's growth," explained Plaskett on a call with Wall Street analysts before the market opened. He said that the board decision was based solely on who was best suited to move the company forward as it tries to shore up its legacy NetWare business and expand its Linux and identity management businesses. "There are no accounting issues or improprieties," Plaskett said emphatically.

To the outside observer, it has looked like Novell has had, for all intents and purposes, two CEOs for a while. While Messman has been the public face of Novell and is one of the key people who was responsible for Novell's acquisition of a number of open source software companies, the most important of which was German commercial Linux distributor SUSE, Hovsepian was brought on to turn around sales in North America a little more than three years ago and, having done that, has been steering the company along with Messman. You can't be an executive in a modern corporation if you don't think you know how to run a company or at least a piece of it, and while Plaskett did not elaborate on it, there must have clearly been some big differences in opinion about how Novell grows and starts moving toward its target of having a 12 to 15 percent operating income from its businesses.

The difference might be generational more than anything else. Hovsepian is 45, and Novell's interim CFO, Dana Russell, who is currently vice president of finance and corporate controller, is 44. Novell is looking inside and outside of its walls for a replacement CFO, according to Plaskett. But it is fair to say that Novell was also looking for someone to lead the company because Novell's numbers have not been great in recent quarters and even after selling off its Celerant consulting unit and buying back $400 million in its own shares, Wall Street was not exactly happy with Novell's share price. But, the shares were up more than 10 percent after the announcement of Messman's departure, giving the company a market capitalization of more than $2 billion. Still, the company was worth $3 billion only a few months ago, and announcements of restructurings, layoffs, the sale of Celerant, and stock buybacks have not really done much to bolster Novell's shares.

Wall Street has been a little tough on Messman, whose credentials to run Novell were as good as any past executives who ran the company--and perhaps better. Messman was one of the original investors in a software company called Novell Beta Systems, which was founded in 1981 and which brought in Ray Noorda, who usually gets credit for being the founder of Novell, two years later. Noorda was instrumental in getting Novell focused on creating a network operating system, which was called NetWare and which was arguably the spark that ignited the server side of the client/server revolution. Noorda got fabulously wealthy with his stake in Novell, and when Microsoft started coming on strong in the 1990s in the server space, first with Windows for Workgroups peer-to-peer networking and then with Windows NT for server-based networking, Noorda bought up various software companies to try to take on Microsoft on the desktop and on the server. The strategy largely failed, and Noorda was ousted from the company. To a certain extent, Messman, who came to Novell in 2001 when Eric Schmidt left Novell to go run Google and who at the time was running a successful consultancy called Cambridge Technology Partners, did the same thing as Noorda: He got Novell into open source--and Linux in particular--and now, after Wall Street has become disappointed in the results, he has been removed from power.

Hovsepian is an ex-IBMer, and he spent 17 years in various positions at Big Blue, including worldwide general manager of industry solutions for the retail and distribution industry sector. After leaving IBM a few years ago, Hovsepian worked at Internet Capital Group, a publicly traded investment company that bought up B2B and e-commerce companies as the dot-com boom was bursting. Novell has a fairly young, seasoned management team, and like rival Red Hat, has seen a lot of changing of the guard in the past five years.

Hovsepian said in the conference call that he had two main priorities--bringing Novell into focus and working on organic growth in its Linux and open source businesses and, with the declines in NetWare being more aggressive than anyone at Novell thought, shoring up that legacy business and making it profitable. Believe it or not, that was one priority. The other one was to bring value to the shareholders. That might mean a lot of changes for Novell. "There will be no stone unturned, and I am very committed to looking at every aspect of the company," Hovsepian said on the call. "I believe we have a tremendous opportunity before us," he said as he talked about prospects for Linux on servers and desktops. He said that there were approximately 5 million Windows NT server licenses still out there that are ripe for the picking, and that the maturity of Linux on the desktop and the bulk and lateness of Microsoft's Vista desktop Windows are making more and more companies think about Linux on the desktop, too.

Operationally, Hovsepian seems focused on getting a unified interface between Novell's customers and the company, something that many customers have complained about. As an example of a change he has been driving as president, he cited the Novell Customer Renewal Center, which will be a central, self-service style means up getting licenses and support for Novell's products. He also said that while Novell is "as tight as any company around in terms of how we transact our business," he did not feel that Novell had enough visibility into what its channel partners are doing, and this has left the company flatfooted. Novell has a Siebel customer relationship management system that gives it a 90-day window into its direct customers, but it does not have an integrated system with its partners that lets it see what is going on. Consequently, Novell cannot make the kinds of projections it would like, for itself and for Wall Street, and can only crunch the numbers after a quarter closes. He also suggested that Novell's product packing and pricing structure was a bit complex. "Do we have to have as many pricing options?" Hovsepian asked rhetorically.

Perhaps the biggest challenge that Novell has is shifting its mindset from a company that sold network operating systems with guaranteed annual maintenance revenues to a company that distributes a product that can be obtained for free, have installation support for a modest fee, and that many customers can and often do support on their own. In the open source model, you aren't competing just on feature set, but on the value of the support. In fact, one might argue that you are only competing against those who provide support for a similar software stack once you more or less have feature parity. So SUSE Linux Enterprise Server 9 is not competing against Red Hat Enterprise Linux 4 so much as Yast Online and the Novell knowledgebase is competing against Red Hat Network and, now, JBoss Online Network. To the extent that this makes sense, Novell might want to take a hard look at SourceLabs, SpikeSource, and OpenLogic. Move before Red Hat does, and figure out what to do about JBoss. Having a software stack that is larger than Linux to support is important for Novell's future, just as important as converting the NetWare base to Open Enterprise Server and riding up the Linux wave.


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Editors: Dan Burger, Timothy Prickett Morgan, Alex Woodie
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