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Can Lan Lord Novell Extend Its Territory?


Information Processing

CAN LAN LORD NOVELL EXTEND ITS TERRITORY?

A millionaire hundreds of times over, Raymond J. Noorda, 67, could afford an endless vacation. Instead, the chairman and chief executive of computer networking leader Novell Inc. pays himself $35,000 a year and works out of an effice just big enough for a desk, a chair, and a collection of knickknacks. He sometimes arrives at work at 6 a.m. And when he travels, he often uses coupons to get the $99 senior citizen rate.

But there are signs that the frugal, hands-on CEO is beginning to consider life after Novell. Recently, he has taken to playing golf on a course next to the company's mountain valley campus in Provo, Utah. "They let us old folks in for nothing, and I take advantage of that," he says. More important, the self-deprecating Noorda seems to be backing off from his reputation as one who alienates potential successors. In the past few months, he has quietly reorganized his 2,800-employee company and handed off real power to four lieutenants.

The move comes just as Novell is trying to parlay its lead in software for local area networks, or LANs, into the much larger and tougher business of corporate-wide networks. At the same time, software giant Microsoft Corp. is making a determined push to grab more of Novell's core business. Novell now commands 63% of the market for software that links PCs together on LANs. That translates into 11,000 small companies designing and servicing networks around Novell's NetWare software and 10 million people using those networks.

But Microsoft is now spending $50 million a year to catch Novell. Although he has lost IBM's support, Microsoft Chairman William H. Gates III says that he is ready to continue weathering losses for as long as it takes to win. Microsoft's MS-DOS software already controls virtually all the IBM PCs and PC-compatibles currently linked by NetWare. And Microsoft's follow-on to MS-DOS, due next year, will likely match many of NetWare's basic functions.

"Keeping ahead of Microsoft is what motivates Ray," says Drew Major, co-designer of NetWare. But the contest between Novell and Microsoft may last many years, which inevitably raises the question of Noorda's successor. Says G. Craig Burton, a former Novell senior vice-president who now heads a Utah consulting firm: "Most of the financial community has this mythical view of Ray--that if he left, the company would be in a shambles."

CONTROL. The recent reorganization is designed to prevent just that. Without actually revealing his own plans, Noorda has divided Novell into three divisions: the core NetWare unit, a general operations unit, and an entrepreneurial troop that's spearheading the push into "wide-area" networks, or WANs. Each is headed by an executive who, Noorda says, could succeed him. Running marketing is Executive Vice-President Darrell L. Miller, another potential heir. With these four running things day to day, the boss can focus on "setting down the fundamentals and making sure we stick to them," as Noorda puts it.

So far, Novell has been nothing but an investor's dream. Its stock has increased twelvefold over the past five years. Net profits soared 94% in 1990 and shot up an additional 81% in the first three quarters of fiscal 1991. Sales should top $600 million for the year.

Novell's success stems directly from a farsighted decision by Noorda years ago. In 1983, the 20-year veteran of General Electric Co. took over a tiny maker of computer terminals and printers on the verge of collapse. Noorda reckoned his best bet was to get out of hardware and focus on software for linking PCs in a network--a relatively unpopular concept at the time. Now, of course, scores of companies are fighting over hardware while Novell enjoys control over a PC software standard that rivals the importance of Microsoft's MS-DOS.

The next, much more difficult step is to set the standard for corporate WANs. NetWare's main strength has been in helping small groups of people, maybe six secretaries, exchange files and share laser printers. But corporate computer managers, with their bias toward IBM, may have trouble believing that NetWare can supervise huge networks spanning the globe and comprising hundreds of small and large systems.

A marketing and joint development alliance with IBM, announced last February, may help change such impressions. Noorda "reached the big corporate market with the stroke of a pen," says Bob Gill, an analyst with the Gartner Group Inc., a Stamford (Conn.) consulting firm. Even Microsoft concedes that "being associated with IBM can't hurt Novell," says Steve A. Ballmer, Microsoft senior vice-president. For now, IBM's doing little more than packaging NetWare in blue boxes--instead of Novell's red ones--and selling it to IBM customers. While that may quickly add another 5% to Novell's market share, analysts say, the big payoff will come only as NetWare's technical reach is extended.

SETTING STANDARDS. Teaming up with IBM could help Novell battle Microsoft, too. As a further measure, though, Noorda has arranged to pay $80 million for Digital Research Inc., which supplies the one direct replacement for MS-DOS--an underdog program called DR DOS. It should help Novell compete with Microsoft in supplying software for the powerful "server" PCs that anchor many LANs. To help its standing in the burgeoning workstation market, meanwhile, Novell in April spent $15 million for a 5% stake in American Telephone & Telegraph Co. affiliate Unix Systems Laboratories. Noorda has also orchestrated a joint venture with Japan's Canon, Sony, Fujitsu, NEC, and Toshiba to push NetWare as a standard in Japan.

Controlling 11% of Novell's $4 billion-plus in outstanding stock, Noorda has more than enough reason to fret over its future success--even if he is preparing to retire. But as he demonstrated last year by scuttling a friendly acquisition by Lotus Development Corp. at the last minute, he's not one to give up control easily. "He believes when he quits doing this work, he won't have much to live for," says former colleague Burton. But if Ray Noorda does decide to ride off into the sunset, it's a good bet it will be on no one's terms but his own.Sandra D. Atchison in Provo, with Evan I. Schwartz in New York


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