Novell Inc. laid off about 200 workers in Provo on Wednesday as part of an overall restructuring the company believes will save it more than $110 million annually.
The job cuts equate to about 10 percent of the company's Provo work force and were part of an overall head-count reduction of about 600 positions. Employees in Provo were notified Wednesday in one-on-one meetings, and their layoffs were effective immediately.
"We're undergoing some restructuring," said Kevan Barney, a Novell spokesman in Utah. "What we're talking about is a reduction in head count. The rationale is a concentration of our resources on what we have identified as our key growth opportunities in Linux and open-source and identity and resource management."
Huge layoffs at the software company had been the source of speculation for the past two weeks. Early reports, citing unnamed sources at the company, said up to 20 percent of Novell's work force would be let go. A more-specific report, based on "a source close to the company," indicated 300 workers would be laid off in Waltham, Mass., and at least that many jobs would be lost in Provo as the company jettisoned 1,000 people. Throughout, the company declined to respond, citing a policy of declining to comment on rumor and speculation.
Novell switched its headquarters from Provo to Waltham in January 2004, although top executives had run the company from the community near Boston for several months prior to that.
While not providing details about functional areas hit hardest by the cuts, Barney said Novell has spent above the industry average in research and development the past couple years as it embraced Linux, a popular and free computer operating system built through the contributions of developers worldwide.
"This restructuring will bring us more in line with industry norms in terms of R&D," he said.
Prior to Wednesday's announcement, Novell had about 5,800 employees, with about 2,000 in Provo.
Barney said about half the cuts would take place outside North America. Affected employees will be offered severance packages consistent with industry norms based on their positions and longevity with the company, as well as outplacement services, he said.
The job cuts are the largest for the company since November 2001, when Novell eliminated 1,400 positions, or about 19 percent of its overall work force, although only about 84 jobs were lost in Provo.
In late 2003, Novell acquired Germany-based SuSE Linux, a Linux software and services company, as a way to expand its ability to provide enterprise-class services and support on the Linux platform — one that is "open-source" instead of based on proprietary underpinnings.
When it acquired SuSE Linux, Novell said a two-year business reorganization would take place. Barney noted that the North American sales force was reorganized, several key Novell products were re-engineered and other changes resulted.
"With all those pieces in place, now is an opportune time to restructure, to improve our financial footing and the line costs going forward under this business model," he said.
No other job cuts are planned.
"We're pretty confident that with this restructuring that we're aligned pretty well with the revenues that we're currently seeing. Obviously, you can never say never, because it's a dynamic industry and things change. But nothing is planned. This is not like Phase One of a multiphase plan."
Some people no doubt will see Wednesday's move as a "declining-business kind of action," he said.
"But this really is a restructuring, to be in line with revenues at the moment but also to put us in position for this revamped product line and revamped corporate strategy we have going. Things have changed and continue to change at Novell. In order to compete, it's the nature of this industry, which almost by definition requires a reinvention periodically, and that more reflects what this is about."
In a prepared statement, Jack Messman, Novell's chairman and chief executive officer, described the restructuring as "part of the comprehensive transformation of Novell's business that the management team has been designing and implementing over the past year."
"While it is a difficult decision to eliminate positions in our talented and dedicated work force, this move is necessary to ensure that our costs are more closely aligned with our business strategy," Messman said. "This is a decisive, yet disciplined, cost-reduction action that balances the need to be fiscally prudent with the need to continually seek growth opportunities and generate long-term profitability in a highly competitive marketplace."
Novell said it expects to have a restructuring charge of $30 million to $35 million in the fiscal fourth quarter ended Oct. 31.
"As a result of the restructuring, product development and consulting resources are now more focused on the company's growth businesses, Linux and Identity," Novell said in announcing the changes Wednesday. "Novell also expects to continue to evaluate non-core consulting activities. The company maintains its commitment to its sales resources, while it continues to align sales skills with its business strategy."
In the quarter ended July 31, Novell saw profits fall 92 percent year over year to $2.14 million, or break-even per share, from $23.4 million, or 6 cents per share. Sales fell 4.7 percent to $290.2 million.
For the quarter ended Oct. 31, Wall Street's consensus expectation is for Novell to turn a profit of 3 cents per share on revenues of $301.4 million. For the year, Wall Street expects revenues of about $1.18 billion.
"The key driver in this cost reduction is to focus more of our resources on our growth areas," Joseph S. Tibbetts Jr., senior vice president and chief financial officer, said in a statement. "By doing so, we will be able to reduce product development expenses, consolidate our worldwide operations, better focus our marketing efforts and realize operational efficiencies in the general and administrative function.
"While the cost reductions will result in some lost revenue opportunities, the net result is expected to be improved profitability as we enter fiscal year 2006."
Novell's stock price was unchanged Wednesday at $7.47 per share. During the past year, the price has ranged from $4.94 to $7.77.
Novell said the full effect of the cost reductions announced Wednesday is expected to be realized in the first fiscal quarter, which ends Jan. 31.
The company also said its board of directors has given the OK for management and financial adviser Citigroup Corporate and Investment Banking to "explore strategic alternatives" to Novell's consulting subsidiary, Celerant. The company already had said it will separate Celerant from Novell sometime in the future.
Cutback facts
Employees affected: About 600 in a 5,800-member work force
Employees affected in Provo: About 200 in a local work force of about 2,000
Effective: Immediately for those in the U.S.
Expected restructuring savings: About $110 million annually
E-mail: bwallace@desnews.com