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Novell Dogged by Delisting, Default Issues

By Jay Lyman
Sep 22, 2006 2:02 PM PT

Novell aired some dirty laundry this week, announcing it had received notification that it is in danger of being delisted from the Nasdaq stock exchange for delayed reporting of financial results for its latest fiscal quarter. The results have been held up by the company's own voluntary, internal investigation into past stock option grants and reporting.

Novell Dogged by Delisting, Default Issues

The Suse Linux vendor also said it received a default notice on a bond with its lender Wells Fargo. Novell is appealing on both matters, retaining its Nasdaq listing in the meantime as is customary when a company appeals. It has also publicly denied the merit of Wells Fargo's default action, saying it believed the warning to be "invalid." It was given 60 days to address the situation.

Shaking Clients

Novell is not alone in the stock options scandal that has put more than 60 other public companies under scrutiny by the Securities and Exchange Commission in recent months.

Both of the issues at hand, however, have further hurt the company's lagging stock price and likely shaken clients of the second largest Linux vendor, Yankee Group Senior Analyst Laura DiDio told LinuxInsider.

"Anytime you get a delisting notice from Nasdaq it's a big red flag," she said. "It's worrisome. It's got to be worrisome to the customers, and that's the big thing."

Up and Down

Novell has been trying to turn the tide of staid growth and slipping shares with new management and more focus on its successful Suse Enterprise 10 Linux operating system.

The company's latest Suse version won analyst and reviewer praise at the recent LinuxWorld conference in San Francisco where rival Red Hat was a no-show.

DiDio pointed to lagging financial results -- including lower year-to-year net revenues and shareholder value -- and said the company has not changed its downward direction just yet.

"You have to wonder where they're going," she said.

Novell does have solid technology in Suse Linux, which recently came away as the platform with the highest uptime in a study DiDio conducted, and year-over-year revenue growth for Novell from Linux is strong, she noted.

Still, she expects the impact of the delisting and default notices to be significant for the firm.

"This kind of thing is going to scare people off," she said.

Still Healthy

Others believe the notices will have minimal impact.

The financial health and stability of a software vendor is a major factor for customers to be sure, but Novell is "a billion dollar company," and big enough that the recent financial issues should not impact the company's business, Gartner Vice President George Weiss told LinuxInsider.

"I don't know it will have an immediate impact on users," he said.

Weiss referred to similar stock option questions with computer giant Dell, and the recent leadership scandal at Hewlett-Packard. Those controversies have not meant much to customers or IT managers, in his view.

"For decision makers, it's had hardly any noticeable impact," he said.

Moreover, the company has signaled it will address the issues, which makes it hard to predict whether they will harm the firm.

"I think we have to wait and see how the financial situation is addressed by Novell," he said.


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