The Bloor Perspective: Novell, unions and accounting for all things

While much of the tech industry has been blighted by poor results, Novell has bucked this trend and achieved both increasing revenue and a small profit. The amazing thing here, of course, is that Novell has hardly been the most secure of businesses in recent times.

Novell's activities over the last year have been directed in two areas. First, it has been working to integrate Cambridge Technology Partners while, on the other hand, finding ways to cut costs by a significant margin. It appears that these joint moves are working out
- temporarily at least.

The CTP acquisition was designed to bring a stronger services capability to the Novell organisation. This has been achieved with CTP contributing $58m to the quarter total of $271.1m. This resulted in a profit of $8.4m for the quarter ended 31 January, 2002. This compares with a loss of $7.8m on revenues of $245m in the same period a year ago.

These results surprised most analysts who were expecting to see a small loss this time around. Novell had predicted break-even for the quarter and so may have given itself something of a shock. However, it is being tentative about its prospects for the upcoming quarter.

It is likely that the last quarter was something of an anomaly for Novell and that it is correct to be cautious about Q2. Most commentators would not have expected the company to achieve so much in such a short time. However, the upward trend in software sales should not be a surprise. Novell was always ahead of the market with its directory product but now its time is coming.

What's more, its technology solutions address real needs within businesses. The underlying eDirectory enables easy management of assets, users, systems and so on, while also creating an easy environment in which to implement security solutions. The introduction of NetWare 6 in September completed a great deal of the infrastructure picture.

It follows that, as software sales increase, we can also expect the services demand to grow in parallel. Novell may have surprised us all in Q1 but this is just a taste of what is to come in the future.

*BT, the union and the outsourcer*

Last month we heard the Communications Workers Union (CWU) complaint that BT had acted illegally in attempting to transfer nearly 400 staff to Computacenter through a TUPE-based outsourcing contract.

CWU decided to ballot its members to see whether they were in favour of the move. By this time, the main sticking point was that of pensions, the only main area not covered by TUPE legislation.

Ian Cuthbert of the CWU claimed the ballot was going ahead as "Computacenter will not give us an enduring commitment to workers pensions".

Mike Norris, Computacenter CEO, admitted TUPE didn't cover pensions and also pointed out that it was BT's responsibility to ensure its employees' demands are satisfied.

The results of the ballot have now been published and out of 436 BT employees taking part, 227 voted yes to industrial action, 52 voted no and 157 abstained.

Ian Cuthbert's comment on the result, especially the high number of abstentions, was that the results "reflect a degree of uncertainty, but that the majority that voted said yes to a strike".

The whole idea behind TUPE is to protect workers as they are transferred from one employer to another. Basic terms like salary and holiday allowance are easy to replicate whereas some benefits, such as discounts on products, that the outsourcing employer produces may have to be compensated by other means. The flip side of the coin is of course that the outsourcer may have some benefits that the employee does not currently have access to.

Pensions are obviously a far more emotive issue than a discount from the staff shop and have become increasingly complex financial products.

If the BT staff are genuinely being treated unfairly then they obviously have a case but this should be put into perspective. With benefits packages it is difficult to make a direct comparison.

It's all down to communication. One of the common flaws in many outsourcing deals is the lack of communication with staff that may be outsourced, the responsibility for which lies with the existing employer.

*Oracle, Siebel and the SEC*

Oracle, the world's second largest software vendor, recently issued a profits warning stating its second quarter results, ending 28 February 2002, will be flat. This is based on a slowdown in demand in the AsiaPac markets that is not compensated for by slight increases in demand in America and Europe.

The announcement concerned the stock markets as the news caused shares in fellow software vendors Computer Associates, Microsoft, PeopleSoft and Siebel Systems to fall. Oracle is usually seen as the barometer for the software industry but its habit of booking sales late in the quarter, when customers are able to negotiate larger discounts, makes it difficult to predict results correctly.

At the end of the day, Oracle may not have anything to worry about but obviously the company's method of booking business means it's trying to hit a moving target in the dark.

Post Enron the booking of business has come increasingly under the spotlight for all the wrong reasons as several of the large IT vendors have been challenged on their accounting practices.

Now another software vendor, Siebel Systems, has started to push for the Securities and Exchange Commission (SEC) to introduce stronger reporting rules.

Tom Siebel, Siebel CEO, wants the SEC to introduce rules that force companies to report business in a standard way thereby stopping the current practice of booking business where and when it needs to be booked.

Siebel's claim is that some software companies - Siebel's competitors - are misallocating revenues between different segments, which in turn gives a false representation of their trading status. By enforcing standard reporting rules, Siebel is hoping that apples will be compared with apples.

Whilst the idea is good it is really part of the ongoing battle between the leading software vendors who are latching on to any opportunity to point score over one another. Tom Siebel is expecting the SEC to introduce new regulation within the next 18 months but the question must be asked -- why not now? Investors are already taking a cautious look at their portfolios after the Enron disclosure and all we will see now is companies preying on the classics of fear, uncertainty and doubt.

Bloor Research is a leading independent analyst organisation in Europe. You can find out more at http://www.bloor-research.com or by emailing mail@bloor-research.com .