Eric Schmidt

faced the carnage.

Three weeks after asking Wall Street to sit down for a vertigo-inducing, fiscal second-quarter warning, Novell announced a 2 cents-a-share profit Tuesday after the bell. Novell's number stepped over slashed Street estimates by a penny, but stood bathed in blood compared with prewarning 16 cents-a-share estimates. (


wrote about the earnings earlier Tuesday.)

In the carnage's aftermath, Novell had a faintly pulsing $302.3 million in revenue, compared with $315.7 million a year earlier. As Novell forewarned, the most brutal cuts came in channel sales, as packaged NetWare sales dropped 32% from 1999's fiscal second quarter. European revenue fell 20% in the second quarter, with U.S. numbers stumbling right behind with a 16% decline.

Novell applied some pressure to the wounds just before the earnings announcement, as management applied a reorganizational tourniquet. CEO Schmidt will divide the company into four divisions based on technology disciplines. This will not lessen his leadership, Schmidt says.

"I know it sounds boring to someone who doesn't run a company day to day," Schmidt says of the new structure. "But many times I don't know who to talk to within the company to see who can create different pieces. ... I'm obviously unhappy about the channel situation. It's basically ourselves shooting ourselves in the foot."

Get the Neosporin.

Consequently, Novell is accelerating organizational tweaking it had planned for the future to coincide with an already vexing quarter. Getting all the bad news out in the open, Chief Financial Officer Dennis Raney stresses that Novell will not cut its expenses over the next quarter. It footed about $23 million more in operating expenses ($209.7 million) in the fiscal second quarter than in the year-ago quarter ($186.8), and won't slow that rate. When asked, Raney didn't want to comment on the possibility of actually growing revenue.

Falling in the "when life gives you blood, make blood pudding" category, not all was bad at Novell -- as a shaky upside shows that consulting revenue jumped 26% and Net-services applications grew 9%.

Schmidt stands by the Net-based product strategies unveiled earlier this spring at Novell's


developers conference. He says the products might be ahead of the game and require a consulting complement for customers dealing with complex networks. The good news is that Novell is in the consulting game to soak up the business. Bad news is customers can't implement.

And as for that failing sales organization, Schmidt and Novell management have installed tools to monitor quotas, make forecasts, give correct numbers and hook into central payout systems. "All of those will give us a more advanced early warning system," Schmidt says.

Now if they can just keep from picking those scabs.

Tish Williams' column takes at look at the people who make Silicon Valley tick. In keeping with TSC's editorial policy, she doesn't own or short individual stocks, although she does own stock options in She also doesn't invest in hedge funds or other private investment partnerships. She breathlessly awaits your feedback at