Novell Reorgs Messman Aside, Hovespian Moves Up: The Focus Is Now on Execution
Al Gillen, Christian A. Christiansen, Fredereick W. Broussard, Mila Kantcheva, Lee Levit, Allan Carey
IN THIS EVENT FLASH
This IDC Event Flash examines the promotion of Novell president Ron Hovsepian to the role of chief executive officer, displacing former chief executive officer Jack Messman in the process. The move comes at a time when Novell is working to regain momentum in the industry, and is approaching the launch of a major revision of its flagship operating system products SUSE Linux Enterprise Server 10 (SLES 10) and SUSE Linux Enterprise Desktop 10 (SLED 10).
On June 22, 2006, Novell announced that its board of directors elected Ron Hovsepian to the position of CEO, in the process removing former CEO and chairman of the board Jack Messman from his day-to-day role. Hovsepian takes on the new responsibilities effective immediately, while Messman carries forward as a board member only until October 2006. In addition, Thomas G. Plaskett, a Novell board member since 2002, was elected as the non-executive chairman of the board.
In conjunction with the removal of Messman, chief financial officer Joe Tibbetts was relieved of his position effective immediately, and has been replaced on an interim basis by Dana C. Russell, who holds the role of vice president of finance and corporate controller. The company said it will conduct a search for a permanent CFO.
In a press release, the new Chairman Thomas Plaskett stated, "The Board concluded that a management change would be the best way to accelerate the execution of our growth strategy and build value for shareholders."
In the Linux space, Novell established its presence through the acquisition of Ximian, a provider of management tools and Linux desktop software, and SUSE Linux, a Linux distribution commercializer focused more closely on the server side of the business. The company did, in IDC's opinion, a good job of integrating the three businesses into a cohesive organization, along with a product unification roadmap that will reach an important milestone with the release of SLES 10 and SLED 10 in July.
The company's broad infrastructure and management software portfolio gives it a unique advantage against competitors in the Linux market space, and a solid competitive position versus well-established Unix vendors such as Hewlett-Packard, IBM, and Sun.
Novell's strategy of becoming an open-source software operating systems vendor and a provider of management tools for mixed (open source and proprietary) environments is a good way to address the evolving needs of the enterprise, but the company has been slow to bring in significant new revenues. In the operating systems segment, which accounts for the largest chunk of Novell's worldwide software revenues (45% in 2005), the combined revenues from NetWare and SUSE Linux have been declining by low single digits over the last 2 years � the net result of fast-declining NetWare revenue, offset by faster-growing, but smaller Linux revenue. In contrast, during the same period the entire operating systems market has been growing in the range of 5-7% annually, much of that growth driven by Microsoft.
Within the Linux platform portion of the operating systems market, Novell grew its Linux operating systems revenue by 36% in 2004, to $39 million, then by 126% to $89 million in 2005. By comparison Red Hat grew its operating systems revenue by 98% in 2004 to $126 million, then by 48% in 2005 to $186 million. The overall Linux market grew revenue totals from $115 million in 2003 to $304 million in 2005. However, these numbers remain small in the overall scheme of the operating systems market, with the industry's collective Linux operating systems revenue accounting for only 1.4% share of the worldwide operating systems market total in 2005. Fortunately, Novell is not exclusively dependent upon Linux sales, although continued increase of Linux operating systems sales remain key to pulling more layered software revenue through its channel.
For collaboration software, where Novell has for a number of years been the number three vendor with its GroupWise product, the vendor has been struggling to preserve market share. GroupWise revenues saw negative annual growth in both 2004 and 2005, while the worldwide market grew by some 12-13%.
Novell did find success in the areas of system management and security software, where its ZENworks systems management and identity management solutions have been performing better. Novell's moves to realign its sales force for the solution sale called for by having complementary management and security solutions produced positive results. The 2005 revenue for Novell's ZENworks family of products grew 4.0% over the 2004 revenues of $149 million, and gave Novell 6.1% market share in Change and Configuration Management Software market.
Novell is widely acknowledged as having a technologically robust solution set in its identity management and security business. The company's support people are knowledgeable and enthusiastic about helping customers achieve success on both internal and externally-focused identity management projects. With a solid understanding of regulatory-related issues, Novell's combination of products and services help many customers automate compliance for lower costs and greater efficiency (for both the IT and internal customers).
Novell did grow its security software revenues by 27% in 2005, well ahead of the 18% growth rate tracked by IDC in that market. Security revenues, however, accounted for about 15% of Novell's total software revenue in 2005 and could not offset the revenue decline in Novell's core business.
Security via identity has been identified by management as a strong growth engine for the company. Novell's latest acquisition of eSecurity will help fuel the growth strategy and add to top line revenue. eSecurity's Sentinel 5, a security information management platform, will provide some of the necessary glue between ZENworks, the identity solutions, and Novell's PatchLink partner to offer customers and channel partners a more cohesive risk management solution set.
Despite the successes here, Novell's security and system management groups have suffered from management turnover, lack of funding, and divisive corporate initiatives (e.g., the debate about whether identity management services or products are more important). Over the last year, IDC has seen these issue diminish slightly and we expect this positive trend to continue with Hovesepian's promotion to CEO.
Novell has suffered from a turnover in its top management team through much of the past decade. A number of industry heavyweights have left Novell over the past few years, including Eric Schmidt, Chris Stone, David Patrick, David Litwack and others.
We see Novell as having a classic problem that is not a new issue for Novell: good product technology, a broad set of solutions, good support infrastructure, but a lack of mindshare among resellers, hardware OEMs, independent software vendors, and � most importantly � among end users.
Combined with the executive turnover, Novell's ability to execute has long been one of the key challenges that the company has needed to overcome. While Messman had significant operations experience as president of Union Pacific Resources, one of the nation's largest independent oil and gas exploration and production companies, he was not as well prepared to lead a former high-flyer tech company into new markets.
The solution to stabilizing the management team and addressing the revenue growth challenge now rests squarely on Hovsepian. His resume includes 17 years at IBM and stints at other organizations, and is a solid background that has helped him succeed to date at Novell. After joining the company, he moved from running sales operations in North America to being president in three short years, and has developed a reputation of being effective at driving execution in the field.
The key for Hovsepian and his team include executing broadly on commitments to customers, employees, and shareholders, including addressing the following areas:
Inspire the 5,000 employees to fight for the company's future
Clearly and consistently express the company's value proposition in business language that resonates with large and small customers
Continue to integrate, rationalize, and simplify the broad product portfolio that Novell offers to customers
Make the hard business decisions to discontinue irrelevant products that defocus the company from its key opportunities
Extend and deepen relationships with top key channel partners.
Execute consistently at the field sales level, and create a solution sales force focused on ITIL and IT service management solutions
Hovsepian brings substantial technology sales experience to his new role and is a likeable guy who connects strongly with both customers and employees. We expect both customers and employees to rally behind him. In partnership with the recently promoted CMO John Dragoon, who shares a common IBM background, he is expected to lead Novell strongly.
Having spent time with Hovsepian on multiple occasions, IDC analysts see his expanded role as an unconditional positive for Novell. But in an industry where the best technology does not always win, the challenge to deliver will be big, with numerous competitors within the Linux and open source community, and the ever-present Microsoft collectively creating a highly competitive and complex landscape across which Hovsepian must lead Novell.
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