November 9, 2004

Why timing of Novell Linux chief resignation, Microsoft payoff is rather curious

Author: Jay Lyman and Chris Preimesberger

Before the dust whipped up by Linux executive Chris Stone's departure from Novell had begun
to settle, the company announced today's $536 million
settlement payment
from Microsoft regarding Novell's NetWare. Industry insiders believe the timing of these two events -- which happened within four days of each other -- is curious, to say the least.

Coincidence? That remains largely uncertain, but the two
events nonetheless have become cause of discussion for some industry analysts, including Yankee Group senior
analyst Dana Gardner and Gartner Group's John Enck.

Gardner did not claim to have any inside information on either Stone's
abrupt departure or the announcement of the huge settlement with Redmond on alleged antitrust
violations related to Novell's NetWare operating system. However, the
analyst did offer some insight on the two matters, that together, "smells
interesting," as Gardner put it.

While some have speculated that the settlement was Novell's reward from
Microsoft for getting rid of Stone -- a vocal open source proponent who was
overseeing the integration of Novell's Ximian and acquired SUSE software --
Gardner said the peace pipe with Microsoft may have simply been intended as
smoke over Stone's departure.

"[Stone leaving] may have given folks pause," Gardner said of Novell
stakeholders. "[The settlement] was probably a defensive move to make up for
losses as a result of Chris leaving."

Novell's stock price dropped 3 percent on the news of Stone's departure last week and rose about the same amount earlier today on the news of the Microsoft settlement. Novell was trading at about $7.25 today on the Nasdaq Exchange.

Gardner, who indicated Stone's position as co-chair along with Novell CEO
Jack Messman was somewhat precarious in the first place, said the same sort
of dynamic may have played into the timing of a truce
announced last spring between Microsoft and Sun Microsystems, which had just
announced layoffs and losses in the days prior to announcement of a
far-reaching settlement.

"It's interesting how you can use a settlement with Microsoft to staunch
the loss of stock price because of something else," Gardner said.

Gartner Group's Enck wrote in an email to NewsForge that "this will definitely represent a change in how
Novell is perceived in the industry. Chris Stone was very outbound oriented -- he had come to represent the voice and face of Novell to the IT community. Of course, at the same time Jack
Messman had continued to hold the reigns of the company in the back office. Chris and Jack also had very different philosophies: Jack being very conservative, Chris being more aggressive, willing to take higher risks. You have to assume that with Chris gone, Novell will gravitate toward being a more conservative
organization (fewer acquisitions, fewer marketing stretches,
etc.)"

What does this move mean for the Linux industry in general, to have a key proponent suddenly leave an "establishment" company like Novell?

"I don't think this has much of an impact on the Novell Linux strategy -- David Patrick is in charge of the Linux (and other platform) initiatives," Enck wrote. "David came from the Ximian acquisition, so he remains a strong proponent of Linux. I don't think Linux is the wedge that drove Chris out of the company -- I think it was a corporate culture issue as represented above."

Novell spokesperson Hal Thayer said there was "no connection whatsoever"
between the resignation of Stone and the announced settlement, which does
not include an end to the fight over WordPerfect.

"We've been in negotiations with [Microsoft] for more than a year on both
issues around NetWare and WordPerfect and the timing for this was driven
mostly by our coming to agreement," Thayer said.

The Novell representative also said that Novell would be suing
Microsoft for damages in connection with WordPerfect during the mid 1990s.

"We will be filing suit in U.S. District Court in Utah against Microsoft
for anti-competitive and monopolistic practices around WordPerfect," Thayer
said.

News of the Microsoft settlement may have helped Novell's stock price,
which rose about 10 percent Monday, but Stone's departure was still a blow
to Novell's "reinvention of itself and becoming a cutting edge open source
supplier," according to Gardner.

Category:

  • Management
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