Succession Picture Clears at Novell

By Lawrence M. Fisher
The New York Times

November 13, 1993

Raymond J. Noorda, who turned Novell Inc. from a struggling also-ran of the computer industry into a $1 billion software powerhouse, confirmed yesterday that he would retire as chief executive when a successor was named.

The company also confirmed published reports that Mr. Noorda was suffering from memory lapses but said they were not significant. It said that an executive search was under way and that Mr. Noorda was expected to stay on as chairman, focusing principally on strategic issues.

"At 69, it's natural for me to be looking for a successor, and I expect to have one in place long before my birthday in June of next year," Mr. Noorda said in a statement.

Shift Was Expected

Melanie King, a Novell spokeswoman, said that the periodic memory lapses that Mr. Noorda had did not affect his planning duties and that his doctor said he was in good health.

"Ray did confirm that he does have minor memory lapses on fairly trivial details, but it doesn't affect his running of the company strategically in any way," she said.

Mr. Noorda's retirement had been anticipated since Novell formed an office of the president in August, with Mary M. Burnside as chief operating officer and James R. Tolonen as chief administrative officer.

It was the first time since coming to Novell 10 years ago that Mr. Noorda had shown any inclination to share power. Mr. Noorda's age, and the way his personality has dominated Novell's corporate culture, had raised concerns in the investment community about Novell's future, despite a steady run of robust earnings.

"The office of the president, organized last summer, is performing very effectively," Mr. Noorda said in his statement. "Novell is in an excellent financial, technology and market position to name a new president and chief executive officer from either inside or outside the company."

Novell shares closed yesterday at $23, up 37.5 cents, in Nasdaq trading. Analysts said the market's positive response perhaps indicated relief that Novell was at last planning its management future. The announcement also gave new life to speculation that the company might be acquired.

"The succession issue has been on people's minds on Wall Street for a couple of years," said Paul Johnson, an analyst with First Boston. "Now, with Noorda stepping out of day-to-day operations, he may be more receptive to outside bids." Mr. Noorda owns 11 percent of Novell's stock, worth more than $800 million.

Novell is based in Provo, Utah, but also has extensive operations in San Jose, Calif.

Although sales growth has slowed in recent quarters and the Microsoft Corporation has mounted direct attacks, Netware, Novell's core software product, has maintained a market share of nearly 70 percent. Still, Mr. Noorda's successor will take command at a perilous time.

Netware is a network operating system that controls the movement of data among multiple personal computers much the way that Microsoft's MS-DOS and Windows regulate data flow within a single personal computer. Two previous Microsoft network operating systems, MS-Network and Lan Manager, failed to make much of a dent in Novell's market. But Microsoft's latest product, Windows NT, is considered a greater threat because it seamlessly combines the desktop and network operating systems.

Some analysts contend that Novell may need to look outside the company to find an executive capable of meeting such challenges.

"I genuinely believe they need someone who has some technology experience because they're going to have to go head to head with Gates," said David Readerman, an analyst with Lehman Brothers, referring to William H. Gates 3d, Microsoft's chief executive.

Mr. Noorda has a laconic, "aw shucks" personal style and has preached a business method he calls "coopetition," which requires close collaborations with competing companies. But he has also demonstrated a fierce animosity toward Microsoft and has not hesitated to use Novell's political stature in Utah.

Mr. Noorda, who has close ties to Senator Orrin G. Hatch, Republican of Utah, put pressure on the Federal Trade Commission to begin a lengthy investigation of possible anticompetitive trade practices by Microsoft. When F.T.C. commissioners deadlocked on the case's merits and dropped the investigation, Novell and its allies had the file turned over to the Justice Department's antitrust division. The investigation is pending.

In the technical arena, Mr. Noorda has advanced his campaign against Microsoft by purchasing Unix Systems Laboratories from A.T.& T. earlier this year and then turning over the Unix brand name and operating system specification to an independent consortium.

Unix is an operating system that controls internal computer functions as well as networking capabilities and is sold under various name brands. Novell executives said that the availability of Unix from many vendors -- Novell, I.B.M., Hewlett-Packard, Sun Microsystems and others -- made it a compelling alternative to Windows NT, which is sold only by Microsoft.

"With NT they want to lock you in," said Kanwal S. Rekhi, Novell's executive vice president for corporate technology. "If you go with that, they have you."

Mr. Rekhi is considered a leading internal candidate, along with Ms. Burnside and Mr. Tolonen, to replace Mr. Noorda.

Mr. Noorda, an electronics executive at the time, came to Novell almost by accident in 1982, when the company, then a personal-computer maker, was on the brink of collapse. He wandered into a Las Vegas, Nev., hotel room that programmers had rented to show off their prototype software and before long signed on as president.

One of Mr. Noorda's first moves was to kill the hardware division. "We always realized that the only differential value we had was in the software," Mr. Noorda said in an interview last year.

Graph: "Novell Under Noorda" shows performance of Novell, Inc. since the company went public in 1985. (Source: Company reports; Datastream)

Copyright 1993